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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2002

Commission file number: 0-31010

AT&T LATIN AMERICA CORP.

(Exact name of Registrant as Specified in Its
Charter)


|                                                                                  |  |                                               
|--------------------------------------------------------------------------------- |  | ----------------------------------------------
|DELAWARE(State or Other Jurisdiction of
    Incorporation)                        |  | 22-3687745(I.R.S. Employer Identification No.)
|                                                                                 
|2020 K Street, N.W., Washington, D.C.(Address of principal executive
    offices) |  | 20006(Zip code)                               

Registrants telephone number including
area code: (202) 689-6300

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

CLASS A COMMON STOCK, $0.0001 PAR VALUE
PER SHARE


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.
Yes  x     No  o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.  x

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes  o     No  x

As of March 20, 2003, 45,544,017 shares of
the registrants Class A common stock, par value
$0.0001 per share, and 73,081,595 shares of the
registrants Class B common stock, par value $0.0001
per share, were outstanding. As of March 20, 2003, the
aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant based on the $0.05
closing price for the registrants Class A common
stock on OTCC on March 20, 2003 was approximately
$1,823,111. Directors, executive officers and 10% or greater
shareholders are considered affiliates for purposes of this
calculation but should not necessarily be deemed affiliates for
any other purpose.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the 2003
Annual Meeting of Stockholders to be filed within 120 days
after December 31, 2002 are incorporated herein by
reference in response to Part III, Items 10 through 13,
inclusive.



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TABLE OF CONTENTS

|         |  |                                                                                                          |  |   
|-------- |  | -------------------------------------------------------------------------------------------------------- |  | --
|PART I  
|ITEM 1.  |  | Business                                                                                                 |  | 3 
|ITEM 2.  |  | Properties                                                                                               |  | 28
|ITEM 3.  |  | Legal Proceedings                                                                                        |  | 28
|ITEM 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                  |  | 29
|        
|PART II 
|ITEM 5.  |  | Market for the Registrants Common Equity
    and Related Stockholder Matters                            |  | 30
|ITEM 6.  |  | Selected Financial Data                                                                                  |  | 30
|ITEM 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                |  | 34
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                                           |  | 49
|ITEM 8.  |  | Financial Statements and Supplementary Data                                                              |  | 50
|ITEM 9.  |  | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure                 |  | 85
|        
|PART III
|ITEM 10. |  | Directors and Executive Officers of AT&T
    Latin America                                               |  | 85
|ITEM 11. |  | Executive Compensation                                                                                   |  | 85
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners
    and Management and Other Related Stockholder Matters |  | 85
|ITEM 13. |  | Certain Relationships and Related Transactions                                                           |  | 85
|ITEM 14. |  | Controls and Procedures                                                                                  |  | 85
|        
|PART IV 
|ITEM 15. |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                                     |  | 85
|         |  | Signatures                                                                                               |  | 86

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FORWARD-LOOKING STATEMENTS

Some of the statements in Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Business and elsewhere in this
2002 Annual Report may constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that are based on
managements beliefs as well as a number of assumptions
concerning future events made by, and information currently
available to, management. These statements involve known and
unknown risks, uncertainties and other factors, that may cause
our actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed in or implied by the forward-looking statements.

Forward-looking statements include but are not
limited to statements and references about the following matters:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | expectations and estimates as to the amount of
    cash required to operate as a going concern;                                                                              
|
| |  | expectations about our ability to restructure
    successfully the capital structure of the Company, through
    discussions with our creditors and other interested parties;
|
| |  | expectations as to our ability to obtain
    additional financing;                                                                                                           
|
| |  | expectations about sources of revenues and the
    percentage breakdown of sources of revenues; and                                                                          
|
| |  | future financial performance.                                                                                                                                                

In addition to other matters that are described
in this annual report on Form 10-K, the following factors,
among others, could cause AT&T Latin Americas actual
results to differ materially from those expressed in or implied
by any forward-looking statements contained in this annual
report on Form 10-K:



| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether we are able to agree with our creditors
    and other interested parties on acceptable terms and conditions
    for a solution to our current liquidity problems;                                                                                                                                   
|
| |  | the outcome of litigation matters and asserted
    claims brought or made against us by various creditors;                                                                                                                                                                                                  
|
| |  | whether we and/or our affiliates file for
    protection from creditors or are otherwise included in a case
    under Chapter 11 of the United States Bankruptcy Code
    and/or under the applicable mechanisms available to us and our
    affiliates in one or more of the countries in which we operate;
|
| |  | whether economic and political conditions in the
    countries in which we operate improve or deteriorate compared to
    our current expectations;                                                                                                                                                         
|
| |  | inaccurate forecasts of customer or market demand;                                                                                                                                                                                                                                                          
|
| |  | currency fluctuations;                                                                                                                                                                                                                                                                                      
|
| |  | our assessment of any changes in AT&T
    Corp.s approach to customers and to its commercial
    relationships with us;                                                                                                                                                                                    
|
| |  | changes in communications technology and/or the
    pricing of competitive products and services;                                                                                                                                                                                                           
|
| |  | highly competitive market conditions;                                                                                                                                                                                                                                                                       
|
| |  | our ability to retain and build relationships
    with existing customers;                                                                                                                                                                                                                                  
|
| |  | changes in or developments under laws,
    regulations and licensing requirements in the countries in which
    we operate;                                                                                                                                                                                 
|
| |  | our ability to obtain and retain rights of ways
    and permits necessary for the expansion and maintenance of our
    networks; and                                                                                                                                                                        
|
| |  | our ability to retain key personnel.                                                                                                                                                                                                                                                                        





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In particular, our ability to estimate our cash
requirements will be affected by several factors, including, but
not limited to:



| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our expectations regarding debt service and
    principal payments owing on existing financing facilities;                                                                      
|
| |  | the amount of cash expected to be used in our
    operations;                                                                                                                   
|
| |  | our ability to maintain and increase revenue;                                                                                                                                   
|
| |  | our ability to collect accounts receivable as
    expected and the timing of collection;                                                                                        
|
| |  | the level of competitive pressure on the pricing
    of our services;                                                                                                           
|
| |  | whether interest rates fluctuate materially; and                                                                                                                                
|
| |  | the impact of fluctuations in currency exchange
    rates in the countries in which we operate, including the effect
    on any current or future currency hedging arrangements.

AT&T Latin America undertakes no obligation
to publicly release any updates or revisions to any
forward-looking statements, which are made as of the date of
this annual report on Form 10-K, to reflect events or
circumstances after the date of this annual report on
Form 10-K.

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PART I



|        |         
|------- | --------
|ITEM 1. | Business

AT&T Latin America Corp. was incorporated on
October 13, 1999 by AT&T Corp., under the laws of the
State of Delaware, and along with its consolidated subsidiaries
is referred to collectively in these consolidated financial
statements and elsewhere in this annual report on Form 10-K
as we, our, the Company,
AT&T Latin America and us. We
acquired our Brazilian subsidiary, AT&T do Brasil (formerly
known as Netstream), in December 1999 from our controlling
shareholder, AT&T Corp. We completed the acquisition of our
Argentine subsidiary, AT&T Argentina (formerly known as
Keytech LD, S.A.), in June 2000. In August 2000 we completed our
merger with FirstCom Corporation, which was a U.S. publicly
traded communications company with operations in Chile, Colombia
and Peru. AT&T Corp. holds 8,000,000 shares of our
Class A common stock and all 73,081,595 outstanding shares
of our Class B common stock, representing 95.2% of the
voting power and 68.3% of the economic interests of our common
stock as of March 20, 2003. AT&T Corp. also holds
2,450,803 warrants to acquire shares of our Class A common
stock at an exercise price of $0.01 per share, and 2,450,803
warrants to acquire shares of our Class A common stock at
an exercise price of $8.00 per share.

We provide business communications services to
major metropolitan business markets in Argentina, Brazil, Chile,
Colombia and Peru. Our local, domestic and international
communications services include data, Internet, local and long
distance voice, web hosting and managed services. We focus
primarily on business customers with growing and diverse
communications needs. These customers include multinational
corporations, financial services companies, media and content
providers, technology companies, manufacturing companies,
government entities, Internet service providers and
communications carriers, as well as small and medium size
businesses. We deliver our services mostly through our own
technologically advanced high speed, high capacity networks,
which interconnect with other providers networks. In
addition, we use our installed network infrastructure to offer
services to carriers, including inbound domestic and regional
voice termination services and last-mile connectivity services.
We also serve in selected cases the mass market, offering long
distance, calling and prepaid cards and dial-up Internet
services. The mass market remains attractive because it provides
additional revenue and cash flow while utilizing otherwise idle
network capacity.

Restructuring Activities

From our inception in 1999 until late 2002, we
supported our growth plan through a combination of financing
facilities from our parent company, AT&T Corp., senior
secured financing from our strategic equipment vendors and other
financing facilities obtained from suppliers and from local
sources in the countries in which we operate. Our business plan
during that period was dependent on the availability of such
financing to finance growth until we were able to reach positive
cash flow.

In October 2002, we announced that, due to a
combination of factors, including the unavailability of certain
expected financing sources, the likely acceleration of certain
debt service obligations and continued weak economic conditions
in the Latin American region, particularly in Brazil and
Argentina, we would incur a funding gap under our business plan.
Also in late 2002, we did not attain certain covenant targets
for minimum revenues and earnings before interest, taxes,
depreciation and amortization, or EBITDA, as specified in our
secured financing facility, and we were informed by our secured
lenders that we would not have access to undrawn amounts under
that facility. We also were informed that we could no longer
draw upon unused portions of our local financing facilities.

Based upon these developments, in November 2002
we commenced a comprehensive business and financial
restructuring and retained an affiliate of AlixPartners LLC, a
recognized adviser in turnaround situations, to assist us in the
restructuring process. Although the outcome of our restructuring
process is uncertain, we believe it is unlikely that any
outcome, whether pursuant to a court-supervised or an
out-of-court restructuring or sale of our business, will result
in any value being attributed to or consideration payable for
our common stock.

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| |                       
| | ----------------------
| | Restructuring Overview

Our restructuring efforts are focused on
positioning AT&T Latin America for longer-term, profitable
growth with conservative expectations regarding access to
capital and external funding. Specifically, we are positioning
the company to be cash flow self-sufficient on an operating
basis. We believe that reaching and sustaining positive cash
flow is essential to restructuring our debt successfully and
funding our future operations, including potential future growth
in our operations and revenues.

At the core of our restructuring efforts is an
evolution in our business focus:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | From revenue growth as a primary driver, to
    profit and cash maximization;                                                                                                                                              
|
| |  | From new customer growth, to new customers that
    meet minimum cash payback and profit criteria;                                                                                                                         
|
| |  | From continued build-out of our network
    infrastructure, to maximizing the potential of our existing
    network by selling to customers that are already on our network
    or proximate to our network facilities; and
|
| |  | From an overhead cost structure oriented to a
    high revenue-growth business model, to a significantly reduced
    structure more in line with a focus on cash preservation and
    cash flow.                           

We expect continued tight capital markets and
limited access to funding. In that environment, we believe our
change in focus will allow us to continue to exploit our key
competitive strengths and existing investments to maximize
returns from our network.

Strategically, our restructuring efforts have
centered on five key elements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Become a low-cost provider of
    services:Our technologically advanced
    network allows us to provide high-quality services at variable
    costs that we believe are competitive with any provider in the
    region. We can offer incremental services or bandwidth to our
    customers with minimal additional expense or capital investment.
    Additionally, as we refocus our business model on more modest,
    profitable growth, we have reduced significant overhead
    expenses. These reductions have occurred in every area of our
    overhead (people, advertising, real estate, etc.). Finally, we
    are working with our vendor partners to reduce our network
    operating expenses. We are renegotiating contracts and
    capacities to more appropriately reflect our volume needs and
    our financial requirements.
|
| |  | Increase the quality of
    revenue:Since our inception in 1999,
    we have generated significant quarter-over-quarter sales growth.
    However, we believe that maintaining high revenue growth will
    require working capital that exceeds our current capital and
    cash sources. Consequently, we are focusing on maximizing our
    return from current customers, and ensuring that new customer
    relationships meet rigorous profitability and cash flow
    benchmarks that are consistent with a self-sufficient growth
    model.                                                                                                                                                                                                                                                                                                
|
| |  | Reduce capital
    expenditures:From 1999 through the
    first half of 2002, we deployed significant capital expenditures
    to develop our advanced network, covering concentrations of
    business districts in 17 major cities in Latin America. At this
    time, although attractive investment opportunities do exist, our
    lack of access to new capital dictates that we dramatically
    reduce capital expenditures and maximize the business
    opportunity within the proximity of our existing network. We
    estimate that our existing networks provide access to
    approximately 39,000 business customers located in the 7,500
    buildings we have wired, of which approximately 5,100 are
    customers today.                                                                                                        
|
| |  | Maintain High Quality Services and Customer
    Care:We will continue to invest in
    our network to maintain service quality and reliability and to
    continue improvement in customer care. We believe that we have
    become recognized for service quality and responsiveness to
    customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Focus on Strict Cash
    Management:We have assumed that we
    will not have access to external funding sources in the near
    term and have established more rigorous cash management
    processes and mechanisms. Our priorities are to continue
    providing high-quality service to our customers while managing
    our cash to sustain operations and provide for modest growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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While our restructuring activities have been
successful to date in expanding our strategic options and
stabilizing our business, we expect we will require additional
capital investment to finance additional growth while
maintaining a strong cash position. Therefore, since the fourth
quarter of 2002, in parallel with our restructuring activities,
we have been working to identify strategic or financial
investors that may acquire all or a portion of our Company.

In February 2003 we retained Greenhill & Co.
LLC as our financial adviser to assist us in exploring
opportunities with strategic and financial investors. We believe
that the Company represents a unique telecommunications asset in
our region, with a strong and attractive customer base.
Moreover, we believe that our integrated regional approach and
modern MPLS and ATM/ IP metropolitan networks make us a scalable
platform upon which to drive further consolidation in our
industry in the South American region. Given continued difficult
conditions in the telecom sector, however, we cannot assure that
we will succeed in consummating a sale or investment transaction
on terms satisfactory to our constituents, if at all.

Liquidity

As of the date of this annual report, we do not
have sufficient cash to meet our requirements in the near term
unless we continue to defer and restructure amounts owed to our
secured and unsecured creditors, and successfully implement
austerity measures now being undertaken, or obtain additional
financing. Our restructuring efforts (including an extension of
certain payables) and the suspension of certain debt service and
principal payment obligations pending the resolution of
negotiations with creditors have allowed us to preserve adequate
cash to sustain operations and substantially reduced our net use
of cash in the near term.

Since November 2002, we have not made debt
service payments on most of our material indebtedness. We are
actively engaged in discussions with our various creditor
constituencies and other interested parties and their advisors.
Our goal is to reach an agreement with these parties to
recapitalize the Companys balance sheet and to reduce
significantly our debt. Currently there are no definitive
agreements relating to any recapitalization, and there can be no
assurance that current negotiations with the various creditors
will lead to agreement on terms acceptable to our creditors as a
group, or that, failing such an agreement, any alternative
transaction or court-supervised reorganization will lead to a
viable recapitalization plan.

As of December 31, 2002 we had foreign
currency forward contracts that hedge certain transactions with
notional amounts of $147.8 million, maturing in various
dates through November 2003. The total $20.8 million fair
value of forward currency contract assets, which are included as
prepaid expenses and other current assets on our
December 31, 2002 balance sheet, represents unrealized
gains on our forward currency contracts selling or buying
foreign currencies as result of the strengthening or weakening
of the dollar compared to the currencies that we hedge. We have
certain hedge transactions in Brazil and the United States,
certain counterparties of which are also creditors of ours in
Brazil. To the extent we do not succeed in restructuring the
loans obtained from such creditors, or loans from other
creditors that may seek to pursue remedies against us, we may
not gain access to some of the hedge settlement proceeds as they
come due. Failure to collect on hedge proceeds would materially
impair our liquidity outlook.

On a consolidated basis, as of December 31,
2002 we had cash and cash equivalents of $33.5 million. We
presently do not have available unused commitments under any
credit facilities. We actively manage liquidity not only in
terms of preserving cash but also with a view toward projected
cash needs in each of our country operations. Our ability to
maintain adequate liquidity for our business as a whole may
depend on our ability to move cash between our country
operations from time to time. However, due to exchange control
regulations and local fiduciary considerations, we may not be
able to transfer cash freely within our corporate group, and
restrictions on such transfers could have an adverse effect on
the liquidity of one or more of our country operations.

Our cash needs arise from operating losses and
other working capital requirements, capital expenditures, debt
service and loan commitment fees. We are continuing to conserve
cash on hand by not servicing material indebtedness and by
continuing to reduce operating expenses and capital
expenditures. While in effect, these austerity measures will
substantially impede our growth.

Implementation of our restructuring program will
require cash outlays during 2003, including for the
renegotiation of financing facilities and other contractual
commitments and for the engagement of professional

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advisors. The amount of professional expenses,
which we estimate between $8.0 million and
$15.0 million, will be payable in part upon completion of a
successful restructuring or sale and will be affected by factors
such as the length of time required to complete the
restructuring and the amount of consideration that may be
received in any sale or investment transaction. We believe it
will be critical to the business to retain effectively a number
of key employees and officers during the restructuring process,
and accordingly we are implementing a retention program under
which retention payments will also be payable following
completion of key milestones in the restructuring process. We
estimate the aggregate amounts payable under the retention
program will range from $1.5 million to $2.5 million during
2003.


The consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The
appropriateness of using the going concern basis in the future,
however, will be dependent upon our ability to address our
liquidity needs as described above. There is no assurance that
we will be able to address our liquidity needs through the
measures described above on acceptable terms and conditions, or
at all, and, accordingly, there is substantial doubt about our
ability to continue as a going concern.

Relationship with AT&T Corp.

We have been informed that our majority
shareholder, AT&T Corp., is seeking to disengage from its
investment in our Company through sale or other disposition of
its equity interest and debt position. As of December 31,
2002, AT&T Corp. owned directly or indirectly approximately
68.3% of the shares of capital stock, representing approximately
95.2% of the voting power, and held approximately
$903.7 million of our long-term debt and preferred stock,
including accrued interest and preferred dividends. In January
2003, AT&T Corp. announced that it had entered into a
non-binding letter of intent to sell for a nominal price all of
the Class A and Class B common stock of AT&T Latin
America owned by it to Southern Cross LLC, a telecommunications
and investment holding company. We also have received
expressions of interest from a number of other qualified
strategic and financial investors. We will continue to pursue
all strategic options for the Company that serve our objective
of maximizing value for our constituents.

If AT&T Corp. were no longer to hold a
majority of the equity interest in the Company, we expect that
certain brand, commercial and other contractual arrangements we
have with AT&T Corp. will likely expire, be terminated or be
phased out over time. These arrangements include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our regional vehicle agreement with AT&T
    Corp., which agreement establishes the territory in South
    America and the Caribbean in which we operate, the types of
    services we are permitted to provide or are restricted from
    providing, certain restrictions on AT&T Corp.s ability
    to compete with us in our designated region and certain rights
    we have to acquire similar businesses in our region from
    AT&T Corp., in the event it acquires such businesses;
|
| |  | our non-exclusive service mark license, which
    allows us to use the AT&T brand and logo in our operations
    and for our services, subject to certain qualifications as to
    service quality and requirements as to brand monitoring and
    management; and                                                                                                                                                                                                                          
|
| |  | our joint sales initiative, which along with
    related arrangements provides for the compensation of the
    AT&T Corp. sales force for sales of our services to AT&T
    Corp. customers and for joint account planning with respect to
    such customers.                                                                                                                                                                                                                              

We expect that a sale or other disposal by
AT&T Corp. of its investment in us, and the termination of
these commercial arrangements will generally reduce the volume
of customer referrals through AT&T Corp., and, at least in
the short term, the number of direct relationships we have with
AT&T Corp.s global customers that we service in South
America and internationally using our infrastructure. In
addition, AT&T

6



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Corp. is deploying an enhanced global data
network, known as the AGN, including in several South American
cities, and we expect that some of these customers may choose to
transition to the AT&T Corp. global network for a
substantial portion of the international data services we
currently provide. We are currently discussing with AT&T
Corp. the terms of commercial transition arrangements and our
future commercial relationship. Given our advanced regional
network covering key South American business centers, our
integrated regional platform, our high-quality services and our
strong relationships with numerous customers that are also
customers of AT&T Corp., we are working to maintain a
collaborative and productive commercial relationship with
AT&T Corp. At the same time, we believe that a disengagement
by AT&T Corp. from its investment in us may open potential
opportunities for us to strengthen relationships with other
major international carriers and their customers, which
opportunities are not fully available to us under our current
business model and contractual restrictions with AT&T Corp.


Relations with Secured and Unsecured
Creditors

We remain in default under our senior secured
financing and are in default under other credit facilities from
suppliers and local financing sources. Our senior lenders are
presently entitled to accelerate all or a part of the
indebtedness we owe to them which could lead to
cross-accelerations of credit facilities we have with local
banks in the countries in which we operate. At present we have
no unused borrowing capacity under any of our credit facilities
due to our present liquidity concerns.

In June 2002 an affiliate of Siemens AG initiated
a legal proceeding in New York Supreme Court against us and our
subsidiary in Argentina, concerning obligations under certain
unsecured promissory notes due in May 2002, having an original
face amount of approximately $12.0 million, which we did
not pay due to a disagreement over the governing law and the
effect of changes in laws in Argentina on the principal amount
of such notes. In November 2002, Siemens initiated a second,
similar action covering approximately $4.0 million original
face amount of notes. We received an adverse judgment in the
first proceeding in October 2002 and in the second proceeding in
January 2003. We have appealed the first action, and intend to
file an appeal in the second action if the judgment is entered.
We also have $3.7 million in additional notes to Siemens
that are due in March 2003. We are currently in discussions with
this creditor to resolve and reschedule these obligations. In
June 2002 we also received a complaint in New York Supreme Court
from IIG Capital, an investment fund that has informed us it
received an assignment of a note of $5.0 million original
face amount issued by the Company to an affiliate of Siemens,
which we also did not pay when due in May 2002 due to our view
of the applicable governing law and effects of changes in law in
Argentina. The claims at issue are similar to those raised in
the Siemens matter. We are in the process of defending this
action.

In November 2002 Banco Itaú S.A. initiated a
legal proceeding in Brazil against our subsidiary, AT&T do
Brasil, concerning a loan in the amount of approximately
$12.0 million. Banco Itaú S.A. has attempted to
accelerate payment of all amounts outstanding under the loan of
which approximately $2.2 million at December 31, 2002 was
past due. In January 2003 AT&T do Brasil filed a
pre-executory exception in this collection action which
exception was reversed in March 2003. Also, at the request of
Banco Itaú S.A., in the same decision the court decided:
(i) to grant to Banco Itaú S.A. rights over certain
forward contracts settlements totalling approximately
$9.4 million (as of the date March 14, 2003) in favor
of the Company, which are payable in April 2003; and
(ii) to create a pledge on certain bank accounts of
AT&T do Brasil indicated by Banco Itaú S.A. However, on
March 24, 2003, AT&T do Brasil obtained a suspension of
the pledge order in an interlocutory appeal.

On November 17, 2002, HSBC initiated a legal
proceeding in Brazil against AT&T do Brasil asserting a
claim for attachment of assets and rights on a $8.4 million
loan. On December 13, 2002, AT&T do Brasil filed a
Provisional Remedy to suspend the effects of a cross default and
acceleration clause contained in two loan agreements entered
into with HSBC. The injunction was granted on December 16,
2002 and the ability of HSBC to accelerate the loan agreements
was suspended. On December 27, 2002, HSBC contested the
injunction but the court confirmed its decision.

If one or more material creditors were to
accelerate successfully the maturities of our debt or to seek to
enforce amounts under judgments against us by proceeding against
our assets, we would likely seek protection under U.S.
bankruptcy law and, depending on remedies that may be pursued by
these creditors, under the laws

7



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##### 



of one or more of the countries in which we
operate. As of December 31, 2002, we had total debt in the
amount of $892.8 million.


Relations with Customers

We believe we have maintained good relationships
with our customers. We have established a broad communication
plan for keeping our key customers apprised of our restructuring
efforts and financial situation and plan to continue doing so.
Through our restructuring process to date, we have focused
particularly on maintaining high quality and reliability of
service to customers.

Services

Our customers demand high quality, reliable and
cost effective communications services with simplified
interfaces. We believe that larger and more sophisticated
customers also expect us to anticipate their communications
requirements and provide customized solutions. By offering an
integrated package of advanced as well as basic services, we
believe we can access a larger market, enhance customer
retention, achieve higher margins and reduce the cost of
acquiring new customers.

Our integrated portfolio of services in the
countries in which we operate falls into two principal
categories, data-Internet and voice services.

Data-Internet services.Our data-Internet services feature
local, national and international reach, high availability and
are delivered over our MPLS, or multiple protocol label
switching, and our common ATM/ IP, or asynchronous transfer
mode/ Internet protocol, multi-service network platform,
accessible via single connections (one port per location) to our
broadband network:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Data Services.Our
    data services consist of basic connection services, such as
    point-to-point dedicated private lines, and private multipoint
    network services, which include offering and managing
    communications links among a number of locations, as wide area
    network services, enabling intranet and extranet connectivity.
    The basic infrastructure plus supporting services allow us to
    implement different communications applications to support a
    wide range of customers needs. As part of our data
    services, we provide secured private IP services, frame relay,
    ATM and clear channel services.
|
| |  | Internet Services.Our Internet services consist of
    dial-up access and high-speed dedicated access services offered
    primarily to businesses, as well as to Internet service
    providers and content providers. Our integrated package to
    Internet service providers and portals allows these customers to
    purchase and/or lease their entire access infrastructure from us.                                                                                                                                                                                                                                                          
|
| |  | Managed Services.Our managed service offers include
    managed data, Internet and web hosting services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Voice Services.Our
voice services include local telephony and long distance
services, pre-paid and calling card services and 800/toll-free
and operator assistance services, depending on our competitive
situation and on regulatory restrictions in each country. We
package these services differently depending on the type of
customer we are targeting. Voice services are an important
complement to our existing data-Internet product portfolio.

Market Strategy

We seek to build collaborative, long-term
relationships with our customers by offering them a broad
portfolio of communications services and business solutions, by
continuously monitoring and identifying their changing
communications needs and by building one or more of our services
into a partnership with the customer in which we seek to become
the single or primary source provider of all of the
customers communications requirements. We believe that, in
addition to providing our customers with superior value, our
market strategy allows us to integrate our services into bundled
solutions, which discourages customers from moving to a new
provider and improves gross margins by encouraging customers to
use a greater number of, and more advanced, services. Prices
charged to customers vary in accordance with the customers
requirements based on network availability and service level
guarantees, the number of locations, types of services,
transmission rates and length of service agreements.

8



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During 2002 we expanded our market coverage while
reducing sales expense. We accomplished this by increasing sales
productivity of our direct sales force through focused training
and sales management programs as well as through the launch of
an indirect sales channel program comprised of partnerships with
selected and certified agents and distributors. We will continue
to build direct and indirect sales channels in order to up-sell
and cross-sell our embedded base, and focus on targeted account
plans to support an aggressive customer retention program.

Our sales philosophy is focused on selling value.
We have developed and deployed sales measurement tools that
allow us to constantly monitor and manage sales productivity in
an effort to better understand and measure sales performance. In
conjunction with these tools, we have developed a performance
driven sales compensation plan based on, among other things,
sales quota attainment, sales of strategic high margin products,
long term sales contracts and customer retention. In addition,
in order to capitalize on our existing investments in wired
buildings, we have structured the plan to reward selling
additional services to existing customers as well as new
customers in existing buildings connected to our network. We
also emphasize training of our sales force in an effort to
promote both targeted selling and positioning our sales people
as advisors to our customers.

Our sales force is supported and complemented by
experienced engineering personnel who organize the efficient
delivery of communications solutions to each customer. The
technical staffs role includes the proper coordination of
vendor service components, customer site preparation, and the
installation, testing, delivery and maintenance of the
communications solution for the customer.

We target our services mainly to three types of
business customers, as well as to carriers and Internet service
providers and, to a limited extent, to the consumer segment:

Multinational
Corporations.We refer to those
companies who have their headquarters outside our territory with
presence in the countries in which we operate as multinational
corporations (MNC). These customers demand
sophisticated integrated communications services, global
connectivity and a single point of contact for all of their
communications needs. As a response to those requirements, the
Company implemented a centralized organization to be able to
rapidly respond to customer requirements. We successfully
managed these accounts and leveraged our relationship with
AT&T to secure new revenues in this segment.

In the first quarter of 2002, we launched a joint
sales initiative with AT&T Corp. The initiative allows the
AT&T Corp. sales force to promote and provide referrals to
us for some of our international data services to multinational
accounts, to interconnect their U.S. corporate customers with
their offices located in Latin America. The initiative also
incorporates a process for joint account planning that allows
our sales force to work with and coordinate sales plans for
AT&T Corp.s global customers in our region. During
2002, we made significant inroads with the MNC customer segment
and have been recognized as a key regional player capable of
providing complex solutions to these strategic customers.

We have been informed that AT&T Corp. does
not intend to renew the joint sales initiative when it expires
in April 2003. As a result of this expiration, we will likely be
competing with AT&T Corp. in the provision of international
data services to these MNC customers. The revenues derived from
these MNC customers today account for less than 10% of 2002
consolidated revenues, of which we believe less than 3% of such
revenues under expiring contracts (or approximately $4.3
million) are at risk during 2003 due to customers choosing
an alternate provider (including AT&T Corp.). We cannot
predict the effect on our revenues of any transition of these
customers to other carriers, including AT&T Corp. While we
expect to encounter increased competition with AT&T to
retain certain multinational customers during 2004, we also
anticipate expanding our relationship with other carriers to
address a larger set of multinational customers in the region.

Large Regional Accounts.Large regional accounts are typically
the top 250-500 regionally based customers by country, based on
revenue or telecommunications expenditures. These customers have
domestic and/or regional operations with increasingly
sophisticated communications needs. We believe that these
customers, which often have complex and sophisticated networks,
increasingly expect us to provide expertise

9



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##### 



on how to use communications technology to
improve their business and subsequently to manage effectively
their internal communication needs and those with their
suppliers, customers and distributors. The Company targets a
subset of these customers by leveraging its competence to manage
complex networks and dedicated customer relationship team.


Small and Medium-sized Enterprises (SMEs).SMEs are small and medium-sized
businesses who are particularly interested in a competitive
suite of services. We primarily target those SMEs located in our
wired buildings. We market bundled solutions to SMEs that
include local telephony, long distance, Internet and data
services. Our SME customer base also allows us to benefit with
our large regional accounts as the SMEs become important targets
to access electronic supply chain networks developed by our
large customers to establish efficient links with their supplier
and distributors. SMEs are strategically important to us in part
through establishment of secured electronic supply chain
networks by SMEs with supplier and distributors over our
network, which creates an important relationship among these
different customers that we target. In addition, these customers
provide an important source of revenue and help us to maximize
our return on investment.

Carriers/ ISPs.We
have supply relationships, often mutual, with other carriers for
bandwidth services and wholesale voice minutes, and we provide
services to meet the access infrastructure needs for Internet
service providers. We believe our relationships with other
carriers are strategically important in order to help reduce our
costs to connect customers not located on our network and to
increase the use of our infrastructure by reselling capacity to
them.

Consumer markets.The Company takes advantage of its network infrastructure,
economies of scale, licenses and operational synergies to
provide services available to consumer markets. Such services
include long distance voice services, prepaid and calling card
services as well as dial-up Internet services. We sell to these
markets through a combination of distribution channels, agency
agreements, and co-branding campaigns.

The following table sets forth selected unaudited
operating statistics by country as of December 31, 2002 (as
well as a comparison to 2001 totals).

|                                                |                      |           |        |        |  |       |        |          |  |      |        |         |  |         |        |        |  |  |        |       |  |  |         |       |  |  |         |       |  |  |       |      |  
|----------------------------------------------- | -------------------- | --------- | ------ | ------ |  | ----- | ------ | -------- |  | ---- | ------ | ------- |  | ------- | ------ | ------ |  |  | ------ | ----- |  |  | ------- | ----- |  |  | ------- | ----- |  |  | ----- | ---- | -
|                                                |                      |           |        |        |  |       |        |          |  |      |        | AT&T    |  | AT&T    |        |       
|                                                |                      |           |        |        |  |       |        |          |  |      |        | Latin   |  | Latin   |        |       
|                                                |                      |           |        |        |  |       |        |          |  |      |        | America |  | America |        | Annual
|                                                |                      |           |        |        |  |       |        |          |  |      |        | Totals  |  | Totals  |        | %     
|                                                |                      | Argentina |        | Brazil |  | Chile |        | Colombia |  | Peru |        | 2002    |  | 2001    |        | Change
|                                                |                      |           |        |        |  |       |        |          |  |      |        |         |  |         |        |       
|Network route kilometers                        |                      |           |        |        |  |       |        |          |  |      |        |         |  |         |        |        |  |  |        |       |  |  |         |       |  |  |         |       |  |  |       |     
|                                                | Metropolitan         |           |        | 276    |  |       |        | 972      |  |      |        | 919     |  |         |        | 1,800  |  |  |        | 1,947 |  |  |         | 5,914 |  |  |         | 5,324 |  |  |       | 11.1 | %
|                                                | Domestic (Long-haul) |           |        | 916    |  |       |        |         |  |      |        |        |  |         |        | 1,225  |  |  |        |      |  |  |         | 2,141 |  |  |         | 2,141 |  |  |       | 0.0  | %
|                                                |                      |           |        |        |  |       |        |          |  |      |        |         |  |         |        |        |  |  |        |       |  |  |         |       |  |  |         |       |  |  |       |     
|                                                | Total                |           |        | 1,192  |  |       |        | 972      |  |      |        | 919     |  |         |        | 3,025  |  |  |        | 1,947 |  |  |         | 8,055 |  |  |         | 7,465 |  |  |       | 7.9  | %
|Total fiber kilometers                          |                      |           | 48,277 |        |  |       | 69,780 |          |  |      | 22,551 |         |  |         | 61,071 |        |  |  | 39,612 |       |  |  | 241,291 |       |  |  | 219,941 |       |  |  | 9.7   | %   
|Number of buildings connected                   |                      |           | 498    |        |  |       | 1,049  |          |  |      | 1,012  |         |  |         | 2,333  |        |  |  | 2,594  |       |  |  | 7,486   |       |  |  | 6,423   |       |  |  | 16.5  | %   
|Ports in service                                |                      |           | 537    |        |  |       | 11,495 |          |  |      | 2,398  |         |  |         | 4,006  |        |  |  | 2,215  |       |  |  | 20,651  |       |  |  | 19,136  |       |  |  | 7.9   | %   
|Permanent virtual circuits active               |                      |           | 509    |        |  |       | 7,435  |          |  |      | 2,027  |         |  |         | 4,227  |        |  |  | 2,092  |       |  |  | 16,290  |       |  |  | 14,571  |       |  |  | 11.8  | %   
|Number of dedicated data and Internet customers |                      |           | 482    |        |  |       | 1,229  |          |  |      | 1,647  |         |  |         | 771    |        |  |  | 992    |       |  |  | 5,121   |       |  |  | 4,871   |       |  |  | 5.1   | %   
|Number of employees                             |                      |           | 156    |        |  |       | 256    |          |  |      | 211    |         |  |         | 141    |        |  |  | 260    |       |  |  | 1,024   | *     |  |  | 1,700   | *     |  |  | (39.7 | )%  



---



|  |                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 39 employees at corporate headquarters
    as of December 31, 2002 and 58 employees at corporate
    headquarters as of December 31, 2001. As of March 1,
    2003, there were 985 total employees excluding 27 at corporate
    headquarters.

10



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Customer Care

We believe a high quality, efficient customer
care organization is a competitive advantage and is important to
our long-term success. Our customer care organization is focused
on three key areas:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | order and contract management, to ensure we
    secure quality order information to reduce sale-to-bill time
    frames;
|
| |  | continuous improvement of all processes and
    procedures experienced by customers; and                                
|
| |  | customer satisfaction, to assure a consistent
    customer experience across all services, segments and countries.      

Customer care is available on a 24
hour/365 day basis. Our staff have trilingual capability,
providing assistance in Portuguese and English in Brazil and in
Spanish and English in the other countries in which we operate.
Customers can contact us directly through our customer care
organization or through our corporate web site. We closely
monitor our customers perception of our services in order
to understand their preferences and to enhance their overall
satisfaction with us. We work with an independent firm to
provide on a monthly basis an analysis of how we resolve
customer inquiries and how our services are perceived by
customers as well as reasons for any customer cancellations.

Networks

We seek to deploy our network facilities to reach
and cover corporate office buildings, office parks, industrial
sites and other high concentrations of businesses and potential
business customers. We believe our focus on the deployment of
metropolitan network and last-mile infrastructure,
combined with our strategy for low-cost purchase of third party
capacity, will enhance our long-term financial performance by
increasing the capacity of, and traffic flow over, our networks.

Our network extends to 17 key cities in Latin
America with metropolitan networks: Buenos Aires and Rosario,
Argentina, São Paulo, Rio de Janeiro, Belo Horizonte,
Brasilia, Campinas, Porto Alegre and Curitiba, Brazil, Santiago,
Vina/ Valparaiso, Concepcíon, Temuco, Chile, Bogotá,
Cali and Medellin, Colombia, and Lima/ Calláo, Peru. At the
end of 2002, we also had points of presence, or POPs, for data
and voice services in 26 other cities. Points of presence are
nodes that are extensions of our network that permit access to
customers in cities where we do not have metropolitan networks.
Our networks are generally based on fiber optic cable. In
addition, we selectively use local multipoint distribution
system, or LMDS, technology, for our expansion into Medellin and
also for additional coverage in Buenos Aires. LMDS is a wireless
broadband technology that allows for efficient network
deployment in areas of lesser density. We have also expanded our
network footprint into additional locations in the countries in
which we operate through agreements with third party network
providers.

Our networks primarily use the asynchronous
transfer mode, or ATM, transport technology, which enables us to
accommodate many different types of information traffic systems
and permits transmission of a mix of voice, data and video. Our
networks also utilize the Internet Protocol, or IP standard. IP
protocol is an inter-networking standard that enables
communication across the multiple networks, public and private,
regardless of the hardware or software used.

Our broadband communications networks include the
following components:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | network operations centers, operating on a
    24-hour/7-day basis, where we monitor and supervise the network
    and service performance;                           
|
| |  | primary, or backbone, rings located in each city,
    with 48, 72 or 144-strand fiber optic cable connecting
    concentration nodes (ATM switches) to a central node;
|
| |  | numerous secondary rings of 36, 48 or 72-strand
    fiber optic cable connecting building premise equipment
    (BPE) to a concentration node;                        

11



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| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | access cables of 2 to 24-strand fiber optic cable
    (or in some cases, a wireless local loop connection) connecting
    building premise equipment with different buildings in the
    network; and
|
| |  | for each customer in a building, a fiber optic,
    coaxial or copper cable connecting the customer premise
    equipment with the building premise equipment.                                       

Because our network is based on fiber optic
technology and uses ATM/ IP switching and transmission
technology, we are able to offer the following benefits to our
customers:



| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an integrated package of voice, data and video
    transmission services, from a single provider;                                                                                                                                                                                                  
|
| |  | high speed data transmission and the ability to
    modify bandwidth easily and activate additional private virtual
    circuits for a customer with low incremental capital investment;                                                                                                           
|
| |  | an ability to accommodate flexibly the traffic
    demand of small, medium and large networks, such as dial-up
    networks used by Internet service providers and other complex
    networks used by financial institutions, multinational
    corporations, universities and government entities;
|
| |  | a high degree of transmission quality, with
    negligible error rate and lost traffic; and                                                                                                                                                                                                        
|
| |  | high availability of the customers wide
    area network (WAN) through features that allow the networks to
    re-route automatically any transmission over the network that is
    held up by congestion, faulty equipment or line damage.                                                       

Our network also includes voice switching centers
to handle voice traffic and value-added voice platforms to
enable the delivery of pre-paid and toll-free services.

We have obtained ATM equipment, optical
transmission equipment, IP-based routers and voice switching
equipment mainly from Cisco Systems Inc., Lucent Technologies
Inc. and Nortel Networks Ltd. Optical transmission and
metropolitan equipment in Brazil and Argentina uses a
technology, DWDM, or dense wave division multiplexing, that
maximizes the use of the fiber optic capacity. In each country,
we use local contractors to install our underground and aerial
fiber network.

We have agreements with third party providers to
secure local access and domestic long-haul capacity in Brazil,
Argentina, Chile and Colombia, to meet some of our off-net
requirements. Pricing under such agreements is periodically
renegotiated or adjusted by their terms to secure more
competitive prices. We use satellite technology to interconnect
Lima to other cities in Peru. We also use very small aperture
terminal, or VSAT connectivity in Colombia in order to serve
remote connections for specific large customer needs.

We are a party to a capacity purchase agreement
with Global Crossing Bandwidth, Inc. which provides for the
acquisition of indefeasible rights of use to high-speed
transmission capacity connecting each of the cities of São
Paulo, Buenos Aires, Santiago and Lima to points of presence in
the United States, effective for fifteen years. Global Crossing,
an affiliate of Global Crossing Bandwidth, Inc., filed for
protection under Chapter 11 of the U.S. bankruptcy laws
protection in January 2002 but continues to provide services
under our agreement. We are a party to a contract with Teleglobe
Colombia S.A. to connect Bogota to points of presence in the
United States. Telegoble Colombia S.A. is undergoing a
restructuring process in Colombia under the protection of Law
550 and continues operations under the name of Teleglobe
Colombia S.A. en Restructuración. We are also a party
to a contract with Emergia to connect Santiago with points of
presence in the United States, and we are a party to a contract
with Telefonica Data for an IP port for access to Internet in
the United States.

We have international capacity alternatives
through satellite capacity from Intelsat and with submarine
cable consortiums and continue to identify additional
opportunities for capacity as appropriate and to accommodate
additional demand. Our international facilities connect to
AT&T Corps Internet, data and voice network, providing
us global connectivity. We are currently analyzing further
diversification of our suppliers of international capacity.

In 2001 we improved our fault management
capabilities by installing an operation support system software
monitoring of our network elements. This software helps reduce
time to identify faults and to repair

12



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##### 



faults, reduces staff requirements, increases
service quality, and provides us the ability to support new
end-to-end contracts.


We are currently in the process of renogotiating
the maintenance services agreements provided by our primary
equipment vendors. These negotiations are designed to result in
service level agreements that address our critical equipment
maintenance needs at a lower cost. We believe we will have new
agreements in place in the near future. However, in the event
that for any particular agreement we are unable to renegotiate
terms that are both operationally and economically desirable, we
have established contingency plans to maintain our network and
minimize any risk to our services to customers and our network.

Website Disclosure

The Companys website address is
www.attla.com. The Company makes its periodic and current
reports available, free of charge, on its website as soon as
reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange
Commission by means of a hyperlink to a third-party SEC filings
database.

Operations By Geographic Areas And
Segments

For financial information about our segments and
geographic areas, see Note 8 to our consolidated financial
statements, which is included on page 75 of this Annual Report
on Form 10-K.

Customers

Argentina.Our
operations in Argentina, which began as a start-up
communications company we acquired in June 2000, experienced a
rapid increase in customer base during 2001 and 2002. As of
December 31, 2002, AT&T Argentina served 482
data-Internet customers and approximately 63,778 long distance
customers. Some of our key strategic alliances in Argentina
include, Prima S.A. (Grupo Clarins online business),
Exiros (Grupo Techints online transactional platform) and
ISP Red Alternativa. Our customer base in Argentina today
includes, among others:



| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Numerous banking institutions, such as Citibank,
    Deustche Bank, Barclays Bank, Banco Central de la Republica
    Argentina, Safra-National Bank of New York., B.N.L, Banco
    Rio-Grupo Santander and Credit Suisse First Boston;
|
| |  | Technology companies such as Compaq, Dell
    Computer, Lucent Technologies, Gartner Group, EDS, and 3M;                                                                                                                              
|
| |  | Automotive companies, such as BMW de Argentina,
    Ford de Argentina and General Motors;                                                                                                                                             
|
| |  | Pharmaceutical companies, such as Pfizer,
    Productos Roche, and Laboratorios Phoenix;                                                                                                                                              
|
| |  | Financial information services companies, such as
    Associated Press and Reuters; and                                                                                                                                               
|
| |  | Other global and multinational companies,
    including Johnson & Johnson, American Express, Assist Card,
    BASF, Coca-Cola, General Electric, Hilton Hotel, and Procter
    & Gamble.                                              

Brazil.As of
December 31, 2002, our Brazilian operations had 1,229
data-Internet customers and 1,330 customers in total including
voice services. Our business customers in Brazil today include,
among others:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Information and consulting businesses, such as
    Agencia Estado, AOL, Bloomberg, Reuters and Ernst &
    Young;                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Most banks, clearing houses and stock/commodity
    exchanges in Brazil, including Banco Santander, Bank of America,
    Bradesco, Deutsche Bank, Bovespa (the stock exchange), Caixa
    Economica Federal, and Banco do Brasil. (AT&T Latin America
    in Brazil links a total of 170 financial and related
    institutions through the Brazilian Payment System project for
    the Brazilian Federation of Banking Associations and the
    Brazilian Central Bank.);

13



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| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Global and multinational companies such as
    Kimberly-Clark, General Electric, J.P. Morgan, Siemens,
    Ericsson, Aon Risk, Carrefour, Olivetti, Nokia, Volkswagen do
    Brasil, Delphi, Fiat, Pepsico, Ford do Brasil, American Express,
    Johnson and Johnson and Caterpillar, Maersk, Avon, Microsoft and
    Pfizer;
|
| |  | Several large national companies, such as iG,
    Jornal Estado de Minas, Belgo Mineira, Serpro, Minas Brasil
    Seguradora, Contax, Petrobrás Distribuidora, Ibmec, Clube
    de Diretores Lojistas de Belo Horizonte; and                                                                                                  
|
| |  | High-tech companies, such as Dell Computers,
    Compaq, IBM, Intel and Olivetti.                                                                                                                                                                                                                                             

Chile.As of
December 31, 2002, our Chilean operations had 1,647
data-Internet customers. We also provide domestic and
international long distance services to approximately 11,600
active customers, including approximately 1,380 active business
customers and more than 10,200 active residential customers. In
addition, we provide carrier code services to an average of
approximately 45,000 users.

Our customers in Chile today include, among
others:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Global and multinational companies, including
    Xerox, Masisa, Compañía Manufacturera de Papeles y
    Cartones, Farmacias Ahumada, and Hyatt;  
|
| |  | Banking institutions, including Banco de
    Crédito e Inversiones; ;                                                                             
|
| |  | Several universities;                                                                                                                             
|
| |  | Information and media groups, such as El
    Mercurio, Canal 13 TV and VTR;                                                                       
|
| |  | International logistics services providers, such
    as P&O Nedlloyd; and                                                                         
|
| |  | Government entities, such as the Ministerio del
    Interior (State Department) and Servicio de Impuestos Internos
    (Internal Revenue Service).

Colombia.As of
December 31, 2002, our Colombian operations had 771
data-Internet customers. Our customers in Colombia today
include, among others:



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Several banking institutions, such as Grupo Aval
    (Banco de Bogotá, Banco Popular, AV Villas, Banco de
    Occidente and others), Banco Granahorrar and others;
|
| |  | Financial Institutions such as Administradora de
    Fondos de Pensiones y Cesantías Porvenir;                                                                    
|
| |  | Global and multinational corporations such as
    Exxon Mobil, Kimberly Clark, Microsoft, Johnson & Johnson,
    Renault and Procter & Gamble, among others;      
|
| |  | Insurance providers such as Delima Marsh;                                                                                                                         
|
| |  | Financial content providers, including Bloomberg,
    Visa and Redeban (MasterCard);                                                                              
|
| |  | Content Providers such as Reuters;                                                                                                                                
|
| |  | Communications carriers such as Telefonica Data,
    Global One and Comcel;                                                                                       
|
| |  | Local retail companies; and several five-star
    hotels.                                                                                                         

Peru.As of
December 31, 2002, our Peruvian operations had 992 Data
& Internet customers, 175 Hosting & Colocation
customers, 205 fixed telephony customers and more than 78,000
long distance customers.

Our customers in Peru today include, among others:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Numerous banking and financial institutions,
    including Interbank, Asbanc, Banco Sudamericano, and the Lima
    Stock Exchange;                                                                                               
|
| |  | More than 75% of Limas five-star hotels,
    including the J.W. Marriott and Stellaris Casino, Hotel Melia
    Lima, Doubletree El Pardo Hotel, and Swissotel and Country Club
    Lima Hotel are currently AT&T Peru Customers;

14



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| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Global and multinational corporations, such as
    W.R. Grace, Productos Roche, Kimberly Clarke, Unisys, Nextel and
    Telecom Italia among others;
|
| |  | Large national accounts such as the Instituto
    Nacional Penitenciario (INPE) and Q-Net, Backus y Johnston;
    and                               
|
| |  | Retailers, supermarket and drugstore chains such
    as Santa Isabel, S.A., and Boticas FASA.                                                       

Strategic and Regional Accounts

During 2002, we acquired a number of significant
pan-regional contracts for global and/or multinational customers
for which we provide international services or service in more
than one country in Latin America. These include well-known
names such as General Electric, American Express and General
Motors in Argentina; Ernst & Young, Bovespa Stock Exchange
and Olivetti in Brazil; Xerox, Banco de Crédito e
Inversiones and El Mercurio in Chile; Visa and Banco Granahorrar
in Colombia; and W.R. Grace and Lima Stock Exchange in Peru. Our
regional accounts include Pfizer, Credit Suisse First Boston,
Hewlett-Packard, General Motors, Avon, Ericsson, Procter &
Gamble, Ford, Johnson & Johnson and Kimberly-Clark, among
others.

As of December 31, 2002, we do not have any
significant concentration of business transacted with a
particular customer that could, if suddenly eliminated, severely
impact our consolidated operations. However, on a relative
basis, our country operations in Argentina and Colombia
generated a higher percentage of revenue in 2002 from a small
number of customers, compared to our operations in Brazil, Chile
and Peru.

Competition

The communications industry remains highly
competitive in the countries in which we operate due to
privatizations and progressive market liberalization, among
other factors. In addition, as a result of tight capital
markets, general economic conditions and corresponding pressures
on new entrants, we have seen additional competitive pressures
for basic communications services. In general, competition in
communications services is based on:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | price and pricing plans;                                                                  
|
| |  | the types of services offered;                                                            
|
| |  | customer service;                                                                         
|
| |  | brand position;                                                                           
|
| |  | network coverage and access to customer premises;                                         
|
| |  | communications quality, reliability and
    availability; and                             
|
| |  | the ability to provide high quality data
    communication services and technical support.

We experienced moderate downward pressure on
prices for our services during 2002, compared to the steeper
price erosion that characterized 2000 and 2001. For 2003, we
anticipate continued moderate downward pressure in the countries
in which we operate.

Argentina.We
believe that our principal competitors in Argentina are the data
transmission companies Telecom Internet S.A., which is
controlled by Telecom Argentina S.A. and is being merged into
Telecom Argentina, and Telefonica Data (formerly known as
Advance Telecomunicaciones S.A.) which is controlled by
Telefónica de Argentina S.A. Telecom Argentina and
Telefónica de Argentina are the incumbents in northern and
southern Argentina, respectively, although both are permitted to
offer services nationally. Telecom Internet and Telefonica Data
use the infrastructure of their incumbent owners to deliver
services to their customers. We expect competition also to
continue from other carriers such as Impsat S.A.

Brazil.The
strongest operators in Brazils telecommunications market
are the incumbent carriers, which are companies remaining after
the break up and privatization of Telebrás, the former
state-owned

15



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##### 



monopoly. These incumbents include Embratel, the
former long-distance arm of Telebrás, and three regional
carriers  Telefónica (formerly Telesp), Brasil
Telecom (formerly Tele Centro Sul) and Telemar (formerly Tele
Norte Leste), each serving a different geographic area. Embratel
is controlled by a consortium led by Worldcom. Brasil Telecom is
controlled by a consortium led by Opportunity Group, a Brazilian
investment and pension group. Embratel is the leader in Brazil
in corporate communications and data solutions. In addition,
three mirror companies created by the auction of
mirror licenses following the Telebrás privatization
provide local services over public switched networks in the same
geographic areas served by the incumbent carriers. These are
Vesper (which includes Vesper and Vesper São Paulo, mirrors
to Telemar and Telefónica, respectively) and Global Village
Telecom (mirror to Brasil Telecom). Intelig, a mirror company to
Embratel, provides domestic and international long distance in
Brazil. Emerging competitors in the Internet and data services
markets include MetroRed, Impsat and Diveo. The competitive
landscape in Brazil for the telecom market is expected to change
significantly in the next several years in part as a result of
the removal of territorial and service restrictions on
incumbents provided that they meet previously defined service
obligations by the end of 2005. In July of 2002, we obtained
licenses from Anatel (Agencia Nacional de Telecomunicacoes),
Brazils telecom regulatory agency, to provide local
Switched Fixed Telephony Service (STFC) and domestic and
international Multimedia Communications Services
(SCM) which will allow us to provide facilities-based voice
services. The SFTC license for local service includes the seven
largest business centers in the country, which will allow the
Company to expand its market by obtaining new customers and
increasing services to existing accounts. The SCM and multimedia
service licenses expand the Companys portfolio in Brazil,
eliminating the restrictions of limited service imposed by older
regulations.


Chile.Chile opened
its fixed local and long distance markets to competition in
1994, and its communications market continues to be very
competitive. There are more than nine fixed local service
providers (although not all of them offer services nationwide)
and more than fifteen carriers or operators in the long distance
segment. Currently, five providers offer both local and long
distance services. Four of them also offer data services; these
are Telefónica Empresas, Entel, Teleductos S.A and
Manquehue Net. We believe that in Chile our main competitors in
the data transmissions market are Telefónica Empresas,
Entel and Teleductos. In recent months Chilesat Empresas
(formerly known as Télex Chile) has developed a very
aggressive campaign in order to position itself in the Corporate
Market. Chilesat has focused its business on the Corporate
Market offering data transmission, Internet access, value added
services (prepaid tickets) and long distance services. Chilesat
changed its brand and corporate image after being acquired by
the investment fund Southern Cross and GE Capital. In the fixed
voice market, the strongest players are the former incumbents
Telefónica CTC and Entel Chile.

Colombia.Colombias communications market
has historically been dominated by the incumbent long distance
operator, Telecom (Empresa Nacional de Telecomunicaciones).
There are several companies that provide value-added services to
corporate customers with end to end fiber optic solutions for
the seven largest cities in Colombia. The rest are serviced
mainly through satellite and radio-based networks owned by third
parties. In the metropolitan areas, specifically in Bogotá,
there are a limited number of high-speed communication service
providers. We believe that our main competitors in data and
Internet services are Impsat, Telecom and Emtelco. Telecom owns
approximately 2.2% of the equity interest of our subsidiary,
AT&T Colombia S.A.

Peru.Telefónica del Perú, a
subsidiary of Telefónica de España, is the predominant
operator in Perus communications market. Telefónica
del Perú was formed by the merger in 1994 of the former
incumbents, Compañía Peruana de Teléfonos and
ENTEL. BellSouth, another carrier which focuses primarily on
cellular and public pay phone services in Lima and other
Peruvian cities, also provides limited frame relay services over
its own small fiber optic loop. During 2002 Americatel has
become a strong competitor, primarily in the long distance
market, in particular in the call per call segment. The call per
call system was implemented in Peru during 2002 and the
competition between the carriers has focused on price. Our
subsidiary, AT&T Peru, is second to Telefónica del
Perú in market share for voice and data transmission
services excluding wireless communications. AT&T Perus
operations cover the fifteen most important provinces in the
country, positioning it as one of the main competitors of
Telefonica del Peru in national carrier services, mainly in the

16



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##### 



corporate segment. In addition, AT&T Peru
offers long distance pre-selection services, both in Lima and in
the provinces.


Employees

As of December 31, 2002, we had a total of
1,063 employees.

We ended 2002 with approximately 695 fewer
employees than we had at the end of 2001 primarily as a result
of headcount reductions that took place during the third and
fourth quarters as part of our austerity plan. That austerity
plan involved not only reductions in headcount but also
significant reductions in other areas of our overhead such as
advertising, real estate and travel expenses. We are continuing
to conserve cash on hand by not servicing material indebtedness
and by continuing to reduce operating expenses and capital
expenditures. We believe that our future success, and the
success of our restructuring efforts, depend in large part on
our ability to retain highly skilled and qualified personnel. We
believe that we offer prospective employees competitive
compensation and benefits. We also are implementing a retention
program under which retention payments will be payable following
completion of key milestones in the restructuring process,
subject to the continued employment of employees covered by the
plan; however, there can be no assurance that the retention plan
will be effective in retaining all employees covered by the
plan. In addition to permanent employees, we also use the
services of contract technicians for the installation and
maintenance of our network and other contract employees for
specific functions. As of March 1, 2003, there were 985
total employees excluding 27 at corporate headquarters.

Regional Vehicle Agreement with AT&T
Corp.

We entered into a regional vehicle
agreement with AT&T Corp. at the time of the FirstCom
merger. This section describes the material terms of the
regional vehicle agreement and related provisions of our
certificate of incorporation. Some of the terms of the regional
vehicle agreement relate to our relationship with Concert,
AT&T Corp.s global joint venture with British Telecom.
In October 2001, AT&T announced that Concert would be
unwound and that transaction was completed in February 2002.

If AT&T disengages from its equity interest
in us, we believe that the regional vehicle agreement will be
terminated.



| |         
| | --------
| | Purpose.

The parties defined the overall scope and nature
of our operations in the regional vehicle agreement as well as
in our certificate of incorporation.



| |       
| | ------
| | Scope.

The regional vehicle agreement and the
certificate of incorporation define:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | where we may operate;                                                                                          
|
| |  | what communications services we may provide and,
    in some cases, to whom those services may be provided; and
|
| |  | the conditions under which AT&T Corp. and its
    affiliates may compete with us.                              



| |      
| | -----
| | Term.

The regional vehicle agreement has an indefinite
term and in general will terminate only by mutual agreement of
AT&T Corp. and us. However, AT&T Corp. may terminate the
regional vehicle agreement at any time after the termination of
our service mark license agreement with AT&T Corp., which
license agreement governs our use of the AT&T service mark
and logo in our business. We have been informed by AT&T
Corp. that it intends to terminate the regional vehicle
agreement if the service mark license is terminated.

17



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##### 



Our Region

Our certificate of incorporation permits us to
operate only in the countries in South America and the
Caribbean, plus Panama but excluding Cuba. In addition, the
regional vehicle agreement restricts us from operating in
Venezuela.

Our Services

Our certificate of incorporation limits our
business generally to the provision of telecommunications
services. Following is a description of the services that we are
permitted to provide under the regional vehicle agreement, as
well as limitations on our services:

Permitted Services.We may provide the following services:



| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | long distance;                                                                                                                                                                                                                                                      
|
| |  | 1-800/toll-free;                                                                                                                                                                                                                                                    
|
| |  | local voice delivered through fixed lines;                                                                                                                                                                                                                          
|
| |  | Internet access;                                                                                                                                                                                                                                                    
|
| |  | e-commerce or electronic commerce;                                                                                                                                                                                                                                  
|
| |  | fixed wireless for network connections;                                                                                                                                                                                                                             
|
| |  | video conferencing;                                                                                                                                                                                                                                                 
|
| |  | web hosting, which involves providing or managing
    equipment to operate an Internet web site;                                                                                                                                                                    
|
| |  | voice over Internet Protocol, which involves the
    transmission of voice over an inter-networking standard that
    enables communication across the Internet regardless of the
    hardware or software used;                                                    
|
| |  | AT&T calling card services, and AT&T
    Direct® services, which allow callers to access AT&T
    networks from points throughout the world;                                                                                                                        
|
| |  | dedicated line services, which involve the
    leasing of network lines expressly for connecting two or more
    users. These dedicated lines establish a permanent circuit
    dedicated solely to the use of the particular customer;                             
|
| |  | switched digital services, which allow users to
    establish end-to-end digital connections over shared facilities
    on an as-needed basis, similar in concept to making a telephone
    call; and                                                               
|
| |  | virtual network services, which involve a
    connection of customer networks to an operators network to
    create an overall capability for voice and data services that
    acts functionally like a network owned or operated exclusively
    by that customer.

We may also provide data services using the
following protocols for transmitting data over a communications
network:



| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | packet X.25, an older protocol designed for
    transmitting data files in pieces or packets over
    analog communications networks that were originally designed for
    voice traffic;                                                                                 
|
| |  | frame relay, a newer protocol designed for
    transmission of data over digital networks in packets of varying
    length; and                                                                                                                                             
|
| |  | ATM, or asynchronous transfer mode, an even newer
    protocol, designed for transmitting data in fixed-size packets
    or cells to enable networks to accommodate many
    different transmission systems and permit transmission of a mix
    of voice, data and video.

18



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Prohibited Services.The regional vehicle agreement limits
our ability to provide some services. We may not provide:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | mobile wireless/personal communications services;                                                                                                                                                                                 
|
| |  | cable telephone or cable services, which include
    telephone, data and video services, as well as Internet access,
    delivered through networks typically used to deliver cable
    television; or                            
|
| |  | cross-border transport services between two or
    more countries to international carriers and select services
    involving the arrangement, management and delivery of
    termination of international communications traffic.

In addition, we may not provide solutions
services, such as outsourcing professional services and systems
integration. Outsourcing professional services include:



| |   |                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | providing professional services relating to
    network architecture validation, implementation, operations and
    life cycle management, which include confirming that a
    networks design works efficiently, installing and testing
    network equipment and managing the need for change to the
    network;
|
| |  | business process consulting and migration
    planning and implementation, which include planning to ensure
    that a customers network properly supports the
    customers objectives and planning for and implementing
    changes to that network; and                                                        
|
| |  | ownership and acquisition of assets from and on
    behalf of customers related to providing outsourcing
    professional services.                                                                                                                                                                                 

Systems integration involves:



| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | advising clients how best to use information
    technology to achieve their ends and to reengineer business
    processes to make organizations work more effectively;                                                                  
|
| |  | specifying, designing or building integrated
    business systems for or on behalf of clients;                                                                                                                                           
|
| |  | managing the change to those systems for or on
    behalf of clients;                                                                                                                                                                    
|
| |  | supporting, maintaining, enhancing, operating or
    further developing those systems for or on behalf of clients,
    providing program or project management and integration of
    customer-defined individual customer solutions; and
|
| |  | providing other related services required or
    requested by clients in connection with the services listed
    above.                                                                                                                  

Systems integration services do not include the
underlying capability to provide services.

Managed Network Services.Although we may not provide solutions
services, we may provide managed network services to companies
other than multinational corporations reserved for the Concert
global venture between AT&T Corp. and British Telecom.
Managed network services include providing:



| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | services to a customer that consist solely of
    providing and maintaining the elements of a customers wide
    area communications network, which is a network connecting two
    or more customer sites, each of which may operate an internal
    local area network;
|
| |  | services to the extent relating to a
    customers wide area communications network, directly
    related planning, design, installation, maintenance and ongoing
    support functions; and                                                                             
|
| |  | equipment on the customers premises at the
    interface between a wide area communications network and the
    remainder of the customers networking environment insofar
    as that equipment facilitates:                                                            



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | the maintenance of the customers wide area
    communication services;                                
|
| |  | the recording of performance data with respect to
    the customers wide area communications services;

19



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##### 





| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the provisioning of new wide area communications
    services to the customer or changes in the parameters of these
    services; or                                                                                                                                                                                          
|
| |  | the integration of multiple wide area
    communications services, excluding in the case of the first two
    items listed in this paragraph any such service or equipment
    that materially extends services beyond the interface described
    above further into the customers non-wide area
    communications network.

We do not believe that this restriction on our
providing managed network services to multinational customers
reserved for Concert will materially affect our ability to
implement our growth strategy, especially in light of
Concerts dissolution.

To the extent we provide services under the
AT&T Latin America brand or other AT&T Corp. brands,
there are service limitations in the service mark license
agreement with AT&T Corp., which are described below.

Competition by AT&T Corp.

The regional vehicle agreement limits the ability
of AT&T Corp. and its subsidiaries to compete with us. It
also places obligations on AT&T Corp. if it acquires our
competitors with specific characteristics, as described below.

The limitations on competition and the
obligations of AT&T Corp. relating to the acquisitions of
competitors discussed below do not apply to Concert or companies
related to the AT&T Global Network Services companies,
AT&T Corp.s Liberty Media group, now spun-off, or
AT&T Corp.s acquisition of MediaOne, now part of
AT&T Broadband, or to any person in which any of those
companies has an equity interest.

In addition, restrictions relating to competition
with us do not apply to:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | services using assets owned or controlled by the
    AT&T Global Network Services companies; or                                                        
|
| |  | services provided by AT&T Corp. or its
    subsidiaries in connection with providing managed network
    services or outsourcing professional services.

Outsourcing professional services include the
provision of professional services relating to network
architecture validation, implementation, operations and life
cycle management. These services include business process
consulting, migration planning and implementation, but not
managed network services. Outsourcing professional services also
include the ownership and acquisition of assets from and on
behalf of customers related to the provision of outsourcing
professional services.

In 2002, AT&T Corp. informed us that it would
deploy the South American portion of its global network through
its existing AT&T Global Network Services companies. This
deployment will enable AT&T Corp. to compete with us in
providing international services to primarily MNC customers.

Competitive Services.Except as described above, AT&T
Corp. and its existing subsidiaries may not offer customers a
number of services in our region unless they are obtained from
us. These services include:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | long distance;                                                                                                                                                                                                                         
|
| |  | 1-800/toll-free;                                                                                                                                                                                                                       
|
| |  | local voice delivered through fixed lines;                                                                                                                                                                                             
|
| |  | Internet access;                                                                                                                                                                                                                       
|
| |  | dedicated line services, which involve the
    leasing of network lines expressly for connecting two or more
    users. These dedicated lines establish a permanent circuit
    dedicated solely to the use of the particular customer;

20



---



##### 





| |   |                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | switched digital services, which allow users to
    establish end-to-end digital connections over shared facilities
    on an as-needed basis, similar in concept to making a telephone
    call; and                                                               
|
| |  | virtual network services, which involve a
    connection of customer networks to an operators network to
    create an overall capability for voice and data services that
    acts functionally like a network owned or operated exclusively
    by that customer.

These services also include data services using
the following protocols for transmitting data over a
communications network:



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | packet X.25, an older protocol designed for
    transmitting data files in pieces or packets over
    analog communications networks that were originally designed for
    voice traffic;                                                                                     
|
| |  | frame relay, a newer protocol designed for
    transmission of data over digital in packets of varying length;
    and                                                                                                                                                          
|
| |  | ATM, or asynchronous transfer mode, an even newer
    protocol designed for transmission of data in fixed-size packets
    or cells that enable networks to accommodate many
    different transmission systems and permit transmission of a mix
    of voice, data and video.

Regional Acquisitions.AT&T Corp. and its subsidiaries
may acquire our competitors. However, except as described below,
if that competitor earned more than half of its revenues in the
previous fiscal year in our region of operations from the
services described under the above heading Competitive
Services, AT&T Corp. or its relevant subsidiary would
be required either to:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cause that competitor to cease offering those
    services; or                                                                                                          
|
| |  | offer to sell to us for cash at fair market value
    the portion of the competitors business that primarily
    relates to those services in our region of operations.

Service Mark License Agreement with AT&T
Corp.

AT&T Corp. has entered into a service mark
license agreement with us that became effective when the
FirstCom merger was completed.

Service Mark License Agreement with AT&T
Corp.Our service mark license
agreement with AT&T Corp. provides for AT&T Corp. to
license service marks, including AT&T and the
AT&T with a fanciful globe design mark, to us for our use.
We may also use the AT&T mark as part of our
trade and corporate names so long as at least half of the
licensed services meet service specifications provided by
AT&T Corp. We may not use any mark other than a mark
licensed by AT&T Corp. for the services described under the
heading Services above without AT&T Corp.s
consent.

During the term of the service mark license
agreement, we are obligated to pay a fee to AT&T Corp. every
six months equal to the greater of $2.5 million and a
designated percentage of our gross revenues, currently 3.25%.
The fee is creditable against certain specified brand management
and service marketing expenses we incur in our local operations.
For the years ended December 31, 2002, 2001 and 2000, we
expensed approximately $5.6 million, $6.1 million and
$1.7 million, respectively, related to this service mark
license agreement fee.

The initial term of the license ends on
August 28, 2005. The agreement will automatically renew for
an additional five years if we are not in material default under
or breach of the license agreement. AT&T Corp. may terminate
the license prior to the end of its scheduled term in the event
of non-payment by us, if AT&T Corp. no longer owns shares
having voting control of our Company or if we misuse the marks
or otherwise materially breach our obligations under the service
mark license agreement and are not able to correct the breach in
a timely fashion.

If AT&T Corp. were no longer to hold a
majority of the equity interest in the Company, we expect that
the service mark license would be terminated or phased out over
time.

21



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##### 



Regulations and Licenses

Argentina.The
Argentine governments liberalization of the
telecommunications sector began in 1989 with the restructuring
and privatization of ENTEL (Empresa Nacional de
Telecomunicaciones), the state-owned monopoly telecommunications
operator, into two regional telecommunications service
providers. Two consortia purchased these regional incumbent
providers: Telecom Argentina (Telecom Italia and France Telecom)
which operates in the northern region of Argentina and
Telefónica de Argentina (Telefónica de España and
financial partners) which operates in the southern region of the
country. The exclusivity in basic telephone services enjoyed by
the incumbents ended in 1999 when two consortia led by Movicom
(Compañía de Radio Comunicaciones Moviles, a BellSouth
affiliate) and CTI (Compañía de Teléfonos del
Interior, a GTE Mobile Communication International affiliate)
respectively, were authorized to offer nationwide local and long
distance services.

The national data and valued added services were
not included in the exclusivity granted to the incumbents.
Consequently, any telecommunications provider could apply for
licenses to provide such services. At least eight main
companies, including Telefónica de Argentina and Telecom
Argentina (through their affiliates), Keytech LD (now AT&T
Argentina) and Impsat, initiated such operations using
terrestrial and satellite-based access platforms.

In March 1998, the Argentine government set up a
plan to liberalize the market by November 2000. In September
2000, Decree No. 764 enacted new rules on interconnection,
licensing, universal service, and spectrum administration. As
all market segments were opened, AT&T Argentina, among other
companies like Impsat, MetroRed, Techtel and Diveo, were
authorized to offer not only data and value added services, but
also local and long distance telephony.

Under the new interconnection regime, AT&T
Argentina was able to enter into interconnection agreements with
the incumbents Telecom Argentina and Telefonica de Argentina and
with other network operators including cellular providers. As a
result of new economic regulations issued in early 2002,
relating to the conversion of pricing of contracts denominated
in US$ into local currency, AT&T Argentina negotiated with
the other telecommunications companies in order to adjust the
interconnection charges.

At the end of 2001, the regulator issued a
resolution which implemented the multi-carrier system (a system
that allows end-users to select a long distance carrier of their
choice on a call-by-call or contractual basis). This resolution
faces significant opposition by most providers, including
AT&T Argentina, due to mandatory obligations to provide
services which restricts competition, and the short timetables
designated for providing the services , as well as insufficient
definition of, among other things, uncollectibles and billing.
On February 4, 2003, the Secretariat of Communications
issued Resolution No. 75 by which amended the prior rule
and directed the providers of local telephony to have their
systems ready by June 2003. AT&T Argentina is currently
analyzing the terms and scope of the new resolution and its
impact on its business plans.

Brazil.Brazils telecommunications laws
were significantly revised in September 1997 when the Brazilian
Congress enacted the General Telecommunications Law and
authorized the creation of ANATEL, the sectors regulatory
agency. In 1998, the Telebrás operating companies were
privatized and its fixed-line communications business was
divided into three incumbent local carriers, Telefónica
(formerly Telesp), Brasil Telecom (formerly Tele Centro Sul),
Telemar (formerly Tele Norte Leste), each of which serves a
different geographic area, and Embratel, the long distance
carrier.

The Brazilian government then sought to create a
regulated duopoly structure by selling at auction
mirror licenses allowing one competitor to provide
communications services over public switched networks in each of
the three areas, and one competitor to provide long distance
services (a public switched network is a network available to
all users and not dedicated to a particular user). These
mirror companies are Vesper (mirror in two regions,
for Telefónica and Telemar), Global Village Telecom (mirror
in one region, for Brasil Telecom) and Intelig (mirror for
Embratel, in long distance services).

Under the new regulatory framework, Brazils
telecommunications services were classified as restricted
services or collective interest services. Further, services are
offered under either the public regime or the private regime.
Services offered under the public regime are highly regulated
and subject to universal service

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obligations. The former Telebrás companies
operate under the public regime and its services are provided
under a concession. Services offered under the private regime,
while also regulated, are not subject to universal service
requirements or price regulation. Instead of requiring a
concession, as public services do, the private regime services
require an authorization from ANATEL, the telecommunications
regulatory agency. Value-added services are not subject to
licenses in Brazil; therefore AT&T do Brasil is able to
conduct value-added services with no restrictions.


As currently defined, collective interest
services are those that must be provided by the service provider
to any interested party, under non-discriminatory conditions. A
restricted interest service is intended for the sole use of the
service provider or of certain user groups selected by the
service provider. Collective interest service providers have the
right to use network infrastructure that is either owned or
controlled by other collective interest service providers.
Collective service providers are required to interconnect with
other collective service providers. The rules and regulations
applicable to this relationship are defined in the General
Interconnection Rules and provide for non-discriminatory access
and technical transparency. Under the Telecommunications
Services Regulations, the interconnection between restricted
interest service providers and other restricted or collective
interest service providers (such as the public fixed network,
among others) is not allowed. It is expected that ANATEL will
issue further regulations regarding the interconnection between
holders of specialized limited licenses (SLE) or
multimedia communication service licenses (SCM), and
other licensees as well as numbering plan and interconnection
charges.

In 2001 ANATEL finalized the rules for new
services  SCM Serviço de Comunicação
Multimídia. The SCM license replaced the SLE license.
The primary differences between SLE and SCM licenses are:



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SCM licensees will be able to provide data
    transmission, video and voice services to corporate customers
    and natural persons (SLE licensees are limited to corporate
    customers);
|
| |  | SCM licenses clearly define numbering plans and
    interconnection fees;                                                                                                                   
|
| |  | SCM licensees may connect directly to customers,
    regardless of whether the customers are part of the same group
    of common interest; and                                             
|
| |  | SCM licensees may provide videoconference and
    other video services.                                                                                                                     

AT&T do Brasil has replaced its SLE license
with a SCM license. This SCM license allows AT&T do Brasil
to develop a nation-wide telecommunications network through its
own infrastructure or leased lines and to offer fixed
point-to-point and point-to-multipoint services as well as
private network services to a company or group of legal (i.e.,
corporate voice, data and video communications services). This
license is international and national in scope and is for an
indeterminate period of time. As with SLE licensees, however,
SCM licensees may not provide phone calls simultaneously
originated and terminated in a public switched telephone
network, or PSTN.

In February of 2002 ANATEL provided rules for new
telephony licenses, local and long distance, which are expected
to increase competition in telephony. Local telephony licenses
are not subject to built out commitments. Long distance national
and international telephony licenses include expansion
obligations, including minimum numbers of local telephony lines
based on the population of the applicable city. AT&T do
Brasil obtained the following licenses: i) for telephony
services in 5 cities (Rio de Janeiro, Belo Horizonte, Curitiba,
Porto Alegre and Brasília) in September 3rd 2002, ii) for
local services in Region III (São Paulo State) in December,
10th 2002, and iii) for national and international long distance
services in Region III (São Paulo State) and numbering
regions of Rio de Janeiro, Belo Horizonte, Curitiba, Porto
Alegre and Brasília in December, 10th 2002.

During 2001, AT&T do Brasil entered into
interconnection agreements with Vesper São Paulo
(Class III  voice), CTBC Telecom, Telemar and
GVT (class V  data). AT&T do Brasil has executed
several contracts for the use of third parties
infrastructure, including contracts with Atrium, Brasil Telecom,
Canbrás, COPEL, CRT, CTBC, Diveo, Eletronet, Eletropaulo,
Embratel, Engeredes, Global Crossing, GVT, Infovias, Light
Telecom, NQT, Pegasus, Telefónica, Telemar and Vésper.

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During 2002 AT&T do Brasil entered into
interconnection agreements with GVT and TCO and won two
injunctions before ANATEL to interconnect its networks with the
local incumbents (Telefonica, Brasil Telecom and Telemar).
AT&T do Brasil is currently negotiating interconnection
agreements with the following companies: Intelig, Vesper, BCP,
Telesp Celular, Telefônica Celular, Embratel.

Chile.Chiles
telecommunications industry is regulated by the Undersecretariat
of Telecommunications (SUBTEL), a unit of the Ministry of
Transportation and Telecommunications (MTT). Chile began
liberalizing the industry in the early 1980s. The General
Telecommunications Law No. 18.168, enacted in 1982,
established policies to introduce competition and eliminate
restrictions on foreign investment. Telefónica CTC,
currently the incumbent telecommunications operator, and ENTEL
Chile, the incumbent international long distance operator, were
privatized in the late 1980s. By 1990 the government had
relinquished its controlling stake in all state-owned
telecommunications companies.

In 1994, Chile introduced a multi-carrier system
that initiated open competition in the long distance and
wireless markets. New rules related to this carrier-selection
mechanism also required that local telephone companies create a
separate legal corporate entity in order to enter the long
distance market.

The MTT also approved a tariff decree for
Telefónica CTCs local service that became effective
in May 1999 and will last until 2004. Given Telefónica
CTCs dominance in local telephony, the tariff decree
prevents predatory pricing. Tariffs for non-dominant carriers in
local telephony are completely unregulated. In addition, the
decree set interconnection rates for the same period of time.
Interconnection rates are cost-based and calculated using a Long
Run Incremental Cost (LRIC) model. However, in 2001
Telefónica CTC filed a petition to overturn this decree
based on the increased number of competitors entering the local
market, including mobile providers, claiming there is enough
competition to warrant less regulation. This petition was
rejected by the judiciary and administrative authorities and
Telefonica filed a claim against the government for damages. In
December 2002, Telefónica CTC Chile filed another petition
before the antitrust commission to overturn the decree.

SUBTEL classifies licenses and authorizations
according to the type of service. AT&T Chile (which refers
to several of our subsidiaries in Chile) holds licenses for
local, domestic long distance and international long distance
service, a license to install and operate a fiber optic network,
and authorizations for data and voice transmission services and
value added services over private line networks. Our subsidiary
AT&T Chile Long Distance entered into interconnection
agreements with Manquehue Telefónica, Telefónica del
Sur, Telesat, CMET, Entel Phone, Telefónica CTC Chile,
Compañía Telefónica Rural, VTR Telefónica,
Compañía de Telecomunicaciones de Coyhaique, Chilesat
and Entel Chile and our subsidiary AT&T Chile Networks S.A
entered into interconnection agreements with Telefónica CTC
Chile and CMET. The contracts with Entel Chile and Chilesat
allow AT&T Chile Long Distance and AT&T Chile Networks
S.A. to transport domestic long distance traffic nationwide.

The existing set of policies and regulations have
made Chile one of the more open and competitive
telecommunications markets in Latin America. We expect that
SUBTEL will continue to focus its regulatory activity on
fine-tuning the existing regime; issuing licenses for the
deployment of new service offerings and new technologies,
increasing consumer information and protection; and ensuring
that the market remains fully competitive.

Colombia.In 1997,
the Colombian government allowed new entrants into the local
market and liberalized the long distance segment. Currently, the
Telecommunications Statute (Decree 1900 of 1990) embodies the
general principles and rules applicable to the
telecommunications industry in Colombia although its
applicability is subject to special laws and regulations for
specific services.

The Ministry of Communications regulates the
assignment of spectrum frequencies and the infrastructure. The
Commission for the Regulation of Telecommunications, or CRT,
performs most regulatory duties. The Superintendence of Public
Services is considered an enforcement agency.

In Colombia, licenses and authorizations are
classified and granted depending of the type of service. Our
subsidiary AT&T Colombia holds nationwide value added
service and carrier licenses as well as a license to use LMDS
fixed wireless technology in the cities of Medellín and
Bucaramanga. AT&T Colombia can offer

24



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data and voice transmission services and
value-added services through virtual private networks. Voice
service is permitted only for closed user groups.


In July of 2001, Congress approved Law 671, which
will open Colombias telecommunications market for
international carrier services to competition. The Ministry of
Communications has been in charge of determining the specifics
conditions to apply for this license. AT&T Colombia has been
evaluating the possibility of applying for the license, which
would allow it to transport, but not terminate, international
traffic to Colombia.

By Resolution 469 of 2002, the CRT issued an
enhanced Interconnection Rule. Interconnection among certain
networks is mandatory in Colombia. The current interconnection
regime establishes a series of obligations for operators and
certain interconnection rates. AT&T Colombia has not entered
into interconnection agreements, but has executed carrier
agreements with, among others, Telecom (national connection),
Teleglobe (Internet connection), ISA (national connection),
IMPSAT (local and national connection), ETB (national
connection), INTERNEXA (national connection), Ductel (local
connection in the city of Cartagena) and Emtelco (local
connection services in ten cities).

The Colombian Ministry of Communications is
currently promoting a new Telecommunications Framework Act. This
bill, and other related laws, aims at comprehensively addressing
the telecommunications sector, including sensitive issues such
as dominant position in the market, rules of competition,
convergence of services and networks under a single global
license, and new technologies. The final draft of this bill will
be presented to Congress during March 2003.

Peru.The Peruvian
Telecommunications Act, approved by supreme decree No.
013-93-TCC (1993), provides the general framework for the
provision and regulation of telecommunications services in Peru.
The provision of telecommunications services is regulated and
overseen by the Ministry of Transportation, Communications,
Housing and Construction and by OSIPTEL, the regulatory agency
in charge of the supervision of private investment in the
telecommunications sector. The Telecommunications Act, the
General Regulations (approved by supreme decree 06-94-TCC), the
General Policy Guidelines for Market Liberalization (approved by
Supreme Decree 020-98-MTC), the decrees issued by the Ministry
and the regulations and decisions made by OSIPTEL, constitute
the legal and regulatory framework for the provision of
telecommunications services in Peru.

In May 1994, the Peruvian government granted
concessions to provide basic local and long distance
telecommunications services to Compañia Peruana de
Teléfonos S.A. (CPT S.A.) and Empresa Nacional de
Telecomunicaciones del Perú S.A. (ENTEL PERU S.A.), the
former local fixed telephony and long distance telephone service
incumbents, under a limited competition regime for a five-year
period. After the privatization process, that same year,
Telefónica del Perú was formed by the merger of CPT
S.A. and ENTEL PERU S.A. Under the limited competition regime,
Telefónica del Perú S.A. enjoyed an exclusivity period
in the provision of local fixed telephony and long distance
carrier services. Other services such as local carrier services,
mobile services and value added services were open to
competition.

The Peruvian telecommunications market was fully
liberalized in 1998, one year before the expiration of the
limited competition environment. This deregulation was the
result of the agreement between the Peruvian government and
Telefónica to modify its concession agreement and Supreme
Decree No. 020-98-MTC. Prior to the deregulation, AT&T Peru
was able to provide value-added services, including internet
access. Under the new competitive landscape, AT&T Peru was
also authorized to provide local telephony and local as well as
domestic and international long distance carrier services.

Currently, the Peruvian government is reexamining
existing rules and regulations and considering the introduction
of changes aiming at the consolidation of open and free
competition. New policy decisions are expected to further
develop the interconnection regime, establish effective rights
regarding essential facilities and unbundled network elements
and implement number portability in the local segment.

AT&T Peru has entered into the following
interconnection agreements: (i) for interconnection of long
distance carrier services provided by AT&T Peru with fixed
local telephony services provided by Telefónica del
Perú (OSIPTEL Interconnection Resolution No. 001-99),
(ii) for interconnection of long distance carrier

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services provided by AT&T Peru with mobile
services provided by Telefónica Moviles SAC, using transit
services from Telefónica del Perú (OSIPTEL
Interconnection Resolution No. 007-2000), and
(iii) for interconnection of fixed local telephony services
provided by AT&T Peru with fixed and mobile services
provided by Telefónica del Perú and Telefónica
Moviles SAC (OSIPTEL Interconnection Resolution
No. 006-2000).


AT&T Peru S.A. also has entered into
interconnection agreements with the following operators:
(i) with Bell South Mobile for all services through direct
interconnection links (agreement signed in late March; submitted
for OSIPTELs review and approval), (ii) with Bell
South, for interconnection of fixed local telephony provided by
AT&T Peru and mobile services provided by BellSouth Mobile,
using transit services of Telefónica del Perú,
(iii) with Teleandina (interconnection contract executed
September 1, 2000, submitted for OSIPTELS review and
approval), (iv) with TIM S.A.C. (Telecom Italia Mobile) for
PSC services (Interconnection 002-2001 dated January 11,
2001), (v) with Nextel del Peru for fixed local telephony
provided by AT&T Peru and mobile services provided by Nextel
del Peru using transit services of Telefónica del Peru
(Interconnection Resolution No. 001-2001 dated
January 8, 2001) and (vi) with Nextel for all services
through direct interconnection links (agreement signed in late
March; submitted for OSIPTELs review and approval).

In addition, during 2002, AT&T Peru S.A. has
entered into interconnection agreements with other operators
such as: (i) IDT (Long Distance with Long Distance,
approved by Resolution N 362-2002), (ii) Compañia
Telefónica Andina (Fixed and Long distance with fixed and
long distance, approved by Resolution N 353-20020,
(iii) Nortek (Long Distance with Fixed, using transit
traffic of Telefónica del Perú),
(iv) Telefónica del Perú (Agreement for use of
toll free service 0-800, approved by Resolution N 224-2002),
(v) IDT (Fixed with long distance, approved by Resolution N
149-2002), (vi) Bellsouth (Fixed and long distance with
mobile services, approved by Resolution N 142-20020, (vii) TIM
(complementary interconnection agreement for use the transit
traffic of Telefonica del Peru, approved by Resolution N
099-2002), (viii) CONVERGIA (using the local transit of
Telefónica del Peru and also between the long distance
network of CONVERGIA and the local fixed telephony of AT&T
Peru, approved by Resolution No. 436-GG/ OSIPTEL on
September 11, 2002), and (ix) Americatel (for long distance
networks; this agreement is currently pending OSIPTEL approval).

In addition, in March 2003, AT&T Peru
obtained a registration as a reseller of the following services:
local fixed telephony, national and international long distance,
mobile services, PCS, trunking, fixed services and public
telephony, local carrier, long distance carrier and value-added
for packet-switched data.

Executive Officers of AT&T Latin
America

|                      |  |     |    |          |  |                                                                 
|--------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Patricio E. Northland |  |     | 47 |          |  | Chairman of the Board, President and Chief
    Executive Officer
|Lawrence E. Young     |  |     | 41 |          |  | Executive Vice President and Chief Financial
    Officer        
|Marco A. Northland    |  |     | 44 |          |  | Executive Vice President  Business
    Services                
|Thomas C. Canfield    |  |     | 47 |          |  | General Counsel and Secretary                                   
|Jose Bravo            |  |     | 41 |          |  | General Manager  AT&T Argentina                                
|Joao A. Elek          |  |     | 40 |          |  | General Manager  AT&T do Brasil                                
|Carlos Fernández C    |  |     | 45 |          |  | General Manager  AT&T Chile                                    
|Sergio Uribe          |  |     | 51 |          |  | General Manager  AT&T Colombia                                 
|José Gandullia C      |  |     | 58 |          |  | General Manager  AT&T Peru                                     

The following is biographical information for our
executive officers:

Patricio E. Northlandhas been our Chairman of the board of
directors and Chief Executive Officer since August 28,
2000, the date of the FirstCom merger. Mr. Northland has
over seventeen years of experience as

26



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an international communications executive and
entrepreneur. Mr. Northland was Chairman of the board of
directors, President and Chief Executive Officer of FirstCom
from November 1996 to August 2000. Born in Chile,
Mr. Northland is a U.S. citizen. In 1991 Mr. Northland
founded AmericaTel corporation, a Miami-based international
communications carrier providing satellite-based voice, data and
fax communications services to corporate customers throughout
Latin America. Prior to his involvement with AmericaTel,
Mr. Northland held key management positions with PanamSat
and IntelSat. In 1996, Mr. Northland sold his interest in
AmericaTel to Entel.


Lawrence E. Younghas been Executive Vice President and
Chief Financial Officer of AT&T Latin America Corp. since
December 2002. Mr. Young has over 15 years of experience in
crisis management and business reorganization. Mr. Young has
been a Senior Associate at AlixPartners, LLC since July 1999
where he has worked extensively on financial restructurings,
most recently as the Chief Restructuring Officer and Chief
Financial Officer of Sunterra Corporation, a publicly held
company with assets over $1.0 billion. Prior to joining
AlixPartners, LLC, Mr. Young was a Principal at Carpediem
Capital, Inc. from 1997 to 1999 were he managed several
acquisition opportunities and served as the principal financial
advisor to companies seeking acquisition candidates.
Mr. Young also has been a Senior Manager at Deloitte &
Touche Consulting where he specialized in turnarounds of
financially troubled companies. Mr. Young is a Certified
Reorganization Accountant.

Marco A. Northlandhas held several management functions,
his most recent as Executive Vice President of Business Services
since the FirstCom merger. Prior to the FirstCom merger, since
June 1999 he was Vice President of Product Marketing and
Business Development of FirstCom. He previously was Vice
President of Internet Services and Business Development and
acting Chief Executive Officer of FirstComs Colombian
operations. In 1997 Mr. Northland founded @Phone, S.A., a
start up telecommunications/ Internet company based in Lima,
Peru. Prior to founding @Phone Mr. Northland, co-founder of
AmericaTel, was its Vice President of Marketing, Sales and
Business Development from 1991. Mr. Northland has also held
executive positions with Panamsat and Hughes Network Systems.
Mr. Marco A. Northland is the brother of Mr. Patricio
E. Northland.

Thomas C. Canfieldhas been our General Counsel and
Secretary since the FirstCom merger. Mr. Canfield became
General Counsel of FirstCom in May 2000. Prior to joining
FirstCom, Mr. Canfield was counsel in the New York office
of Debevoise & Plimpton where for nine years he practiced in
the area of international business transactions.

Jose Bravohas been
General Manager of AT&T Argentina since January 15,
2003. Prior to joining AT&T Argentina, Mr. Bravo worked
for CTI, a cellular carrier with nationwide coverage in
Argentina from 1994 to 2002, where Mr. Bravo held a number of
positions including Director of Strategy and Regulatory Affairs,
Director of Marketing, Director of New Businesses and Director
of Sales. Prior to CTI, Mr. Bravo was Commercial Director
of Telintar, an international telecommunications carrier jointly
owned by Telefónica de Argentina and Telecom Argentina from
1991 to 1994.

Joao A. Elekhas
been General Manager of AT&T do Brasil since November 2002.
Prior to his position as General Manager, Mr. Elek was
Chief Financial Officer of AT&T do Brasil beginning in May
2000. During 2001, Mr. Elek also served as acting Chief
Financial Officer of AT&T Latin America Corp. before moving
into a regional financial planning role for the Company. Before
that, Mr. Elek was the CFO for the Consumer business of
Citibank in Brazil where he worked for 20 years in various
Finance, Controllership, Compliance, Corporate Finance and
Treasury positions.

Carlos Fernández C.has been General Manager of AT&T
Chile since the FirstCom merger other than during the period
between October 2002 and February 2003 when he assumed the
responsibilities of Regional Vice President of the proposed
regional service center. Prior to the merger, he was Chief
Executive Officer of FirstCom Chile S.A. since March 1998. Prior
to joining FirstCom Mr. Fernández had over seventeen years
of experience as an international communications executive with
IBM Chile. From 1981 to 1997 Mr. Fernández held
various positions including director of IBM Chile, Corporate and
Business Affairs Manager and Commercial Manager.

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Sergio Uribehas
been General Manager of AT&T Colombia since April 2002.
Prior to joining AT&T Latin America, between 1998 and 2001,
Mr. Uribe was President of AV Villas, a mortgage bank which
is the seventh largest financial institution in Colombia. From
1996 to 1998 Mr. Uribe was President of Corporacion
Financiera Colombiana, a merchant and investment bank.
Mr. Uribe has over 25 years of management experience
in which he has been President of Cemento Samper, Director of
Corredores Asociados and Vice-President of Banco del Estado.
Since 1987 he has been a member of the Board of Directors of
Banco de Bogota.

José Gandullia C.has been General Manager of AT&T
Peru since the FirstCom merger. Prior to the merger, he was
Chief Executive Officer of FirstCom Peru since April 1999 and
was Chief Financial Officer from October 1998 to April 1999.
Prior to joining FirstCom, Mr. Gandullia served as General
Manager of Los Portales Consorcio Hotelero, S.A. From 1991 to
1997 he served as Executive Director of Kong Corporate Group in
Guatemala. Mr. Gandullia has 20 years of experience in
international communications, having held management positions
in the United States, Venezuela, Mexico, Peru and Central
America.



|        |           
|------- | ----------
|ITEM 2. | Properties

Our principal physical properties are our
high-speed communications networks, which include switching
equipment, transmission equipment and fiber-optic cable. See the
description of our network contained under heading
Networks on pages 1113 and Note 2 to the
consolidated financial statements.

We lease our office space and most of our network
equipment locations. We also own a number of small properties
where we locate equipment. Our corporate leased facilities
include approximately 19,000 square feet of office space. We
believe that suitable alternative locations are available in all
areas where we currently conduct business. Our corporate
headquarters are currently located at 2020 K. Street, N.W.,
Washington D.C.



|        |                  
|------- | -----------------
|ITEM 3. | Legal Proceedings

We have been named as a nominal defendant in an
action entitled Confin International Investments, Inc., Pltf. v.
AT&T Corp., et al, filed in the Delaware Court of Chancery
in New Castle County on October 29, 2002 in which AT&T
Corp. and each of our directors have been named as defendants.
The complaint in the action contains two counts, the first
styled as a derivative claim on our behalf alleging breach of
the duty of loyalty by AT&T Corp. and the members of our
board of our directors. The second count alleges a class action
by our shareholders (other than AT&T Corp. and our
directors) for unspecified damages purportedly caused by the
actions alleged in the first count. The complaint seeks recovery
of the plaintiffs attorneys fees and costs, and
alleges plaintiff has been a shareholder of the Company for a
relevant period.

We expect that AT&T Corp. will defend this
lawsuit vigorously, and we anticipate that each of our
directors, to the extent they are not dismissed from this
action, will similarly launch a vigorous defense. While we are
unable to predict the outcome of this case, we do not believe it
will have a material impact on our financial condition, results
of operation, or cash flows.

In June 2002 an affiliate of Siemens AG initiated
a legal proceeding in New York Supreme Court against us and our
subsidiary in Argentina, concerning obligations under certain
promissory notes due in May 2002, having an original face amount
of approximately $12.0 million, which we did not pay due to
a disagreement over the governing law and the effect of changes
in laws in Argentina on the principal amount of such notes. In
November 2002, Siemens initiated a second, similar action
covering approximately $4.0 million original face amount of
notes. We received an adverse judgment in the first proceeding
in October 2002 and in the second proceeding in January 2003. We
have appealed the first action, and intend to file an appeal in
the second action if the judgment is entered. We also have
$3.7 million in additional notes to Siemens that are due in
March 2003. We are currently in discussions with this creditor
to resolve and reschedule these obligations. In June 2002 we
also received a complaint in New York Supreme Court from IIG
Capital, an investment fund that has informed us it received an
assignment of a note of $5.0 million original face amount
issued by the Company to an affiliate of Siemens, which we also
did not pay when due in May 2002 due to our view of the
applicable governing law and effects of changes in law in
Argentina. The claims at issue are similar to those raised in
the Siemens matter. We are in the process of defending this
action.

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In November 2002 Banco Itaú S.A. initiated a
legal proceeding in Brazil against our subsidiary, AT&T do
Brasil, concerning a loan in the amount of approximately
$12.0 million. Banco Itaú S.A. has attempted to
accelerate payment of all amounts outstanding under the loan of
which approximately $2.2 million at December 31, 2002 was
past due. In January 2003 AT&T do Brasil filed a
pre-executory exception in this collection action which
exception was reversed in March 2003. Also, at the request of
Banco Itaú S.A, in the same decision the court decided:
(i) to grant to Banco Itaú S.A. rights over certain
forward contracts totalling approximately $9.4 million (as
of March 14, 2003) in favor of the Company, which are payable in
April 2003; and (ii) to create a pledge on certain bank
accounts of AT&T do Brasil indicated by Banco Itaú S.A.
However, on March 24, 2003, AT&T do Brasil obtained a
suspension on the pledge order in an interlocutory appeal.

On November 17, 2002, HSBC initiated a legal
proceeding in Brazil against AT&T do Brasil asserting a
claim for attachment of assets and rights on a $8.4 million
loan. On December 13, 2002, AT&T do Brasil filed a
Provisional Remedy to suspend the effects of a cross default and
acceleration clause contained in two loan agreements entered
into with HSBC. The injunction was granted on December 16,
2002 and the ability of HSBC to accelerate the loan agreements
was suspended. On December 27, 2002, HSBC contested the
injunction but the court confirmed its decision.

In addition to the proceedings described above,
in the normal course of business, we are subject to proceedings,
lawsuits and other claims. These matters are subject to many
uncertainties and outcomes that are not predictable with
assurance. Consequently, we are unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with
respect to these matters. While these matters could affect
operating results of any one quarter when resolved in future
periods, it is managements opinion that after final
disposition, any monetary liability or financial impact to us
would not be material to our annual consolidated financial
position or results of operations.



|        |                                                        
|------- | -------------------------------------------------------
|ITEM 4. | Submission of Matters to a Vote of Security
    Holders

None.

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PART II



|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

AT&T Latin America Corp. Class A
Common Stock

Market Information.Our Class A common stock is
traded on the OTC Bulletin Board under the symbol ATTL.OB, where
it has traded since January 17, 2003 following its delisting
from the Nasdaq Small Cap Market. During 2002 our Class A
common stock was listed on the Nasdaq National Market (and
Nasdaq Small Cap Market) under the symbol ATTL. Our
Class B common stock is not publicly listed or traded.

The following table sets forth, for the quarters
indicated, the high and low trading prices of our Class A
common stock as reported by the Nasdaq National Market (or
Nasdaq Small Cap Market as applicable).

|               |  |                                |      |      |  |      |      |     |  |   |       |  |  |   |       | 
|-------------- |  | ------------------------------ | ---- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |                               
|               |  | Fiscal Year Ended December 31,
|               |  |                               
|               |  |                                |      |     
|               |  | 2002                           |      | 2001
|               |  |                                |      |     
|               |  | High                           |      | Low  |  | High |      | Low
|               |  |                                |      |      |  |      |      |    
|First quarter  |  | $                              | 2.37 |      |  | $    | 0.60 |     |  | $ | 6.188 |  |  | $ | 2.438 | 
|Second quarter |  | $                              | 1.92 |      |  | $    | 0.50 |     |  | $ | 5.000 |  |  | $ | 2.406 | 
|Third quarter  |  | $                              | 0.93 |      |  | $    | 0.49 |     |  | $ | 4.910 |  |  | $ | 1.501 | 
|Fourth quarter |  | $                              | 0.74 |      |  | $    | 0.14 |     |  | $ | 3.000 |  |  | $ | 1.050 | 

Holders.As of
March 20, 2003, there were approximately 12,237 beneficial
owners of the 45,544,017 shares of our Class A common stock
outstanding. AT&T Corp. holds 8,000,000 shares of our
Class A common stock and all 73,081,595 outstanding shares
of our Class B common stock, representing 95.2% of the
voting power and 68.3% of the economic interests of our common
stock as of March 20, 2003.

Dividends.We have
not declared cash dividends to holders of shares of Class A
or Class B common stock since our inception, and we do not
anticipate paying any cash dividends in the foreseeable future,
but instead intend to retain future earnings, if any, for
reinvestment in our business.

Any future determination as to the payment of
cash dividends to Class A and Class B common
stockholders will be made at the discretion of our board of
directors and will be dependent upon our operating results,
financial condition, capital requirements, general business
conditions and such other factors as the board of directors
deems relevant. We are prohibited from paying dividends under
the Common Agreement governing our senior secured vendor
financing while this vendor financing is outstanding. In
addition, the certificate of designation for our Series B
preferred stock, all of which is owned by Global Card Holdings,
a wholly-owned subsidiary of AT&T Corp., prohibits us from
paying dividends on any common stock so long as shares of
Series B preferred stock are outstanding. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital
Resources.



|        |                        
|------- | -----------------------
|ITEM 6. | Selected Financial Data

The following tables set forth selected summary
consolidated financial data for the years ended
December 31, 2002, 2001 and 2000 and for the period from
October 13, 1999 (Inception) through December 31, 1999
and has been derived from our audited consolidated financial
statements which are included elsewhere in this Annual Report on
Form 10-K and our previously filed Annual Reports on
Form 10-K. Refer to the financial information included in
this Annual Report on Form 10-K, our financial statements
and the information under Managements Discussion and
Analysis of Financial Condition and Results of Operations
for further information.

30



---



##### 



AT&T Latin America Corp.

|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |     |        |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------------------------------------- | -------------------- | ------------ | ---------- | -------- | -------- | -------------- | -------- | -------- | -------- | ------ | -------- | -------- | ------ | --- | ------ | ------ | -
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          | For the period
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          | From          
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          | October 13,   
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          | 1999          
|                                                                                                                                                                           |                        |                                       |                      | (inception) 
|                                                                                                                                                                           |                        | Year Ended December 31,               |                      | Through     
|                                                                                                                                                                           |                        |                                       |                      | December 31,
|                                                                                                                                                                           |                        | 2002                                  |                      | 2001         |            | 2000     |          | 1999          
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |               
|                                                                                                                                                                           |                        |                                      
|                                                                                                                                                                           |                        | (In thousands, except per share data)
|Revenue:                                                                                                                                                                   |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|                                                                                                                                                                           | Data-Internet services |                                       | $                    | 103,354      |            |          | $        | 88,118         |          |          | $        | 41,368 |          |          | $      | 802 |       
|                                                                                                                                                                           | Voice services         |                                       |                      | 62,239       |            |          |          | 62,792         |          |          |          | 10,867 |          |          |        |    |       
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|                                                                                                                                                                           |                        |                                       | Total revenue        |              |            | 165,593  |          |                |          | 150,910  |          |        |          | 52,235   |        |     |        | 802    |  
|Cost of revenue                                                                                                                                                            |                        |                                       | 103,611              |              |            |          | 120,112  |                |          |          | 54,070   |        |          |          | 865    |    
|Selling, general and administrative expenses                                                                                                                               |                        |                                       | 119,319              |              |            |          | 135,672  |                |          |          | 67,695   |        |          |          | 2,164  |    
|Depreciation and amortization                                                                                                                                              |                        |                                       | 113,760              |              |            |          | 104,053  |                |          |          | 43,795   |        |          |          | 1,707  |    
|Impairment loss on goodwill                                                                                                                                                |                        |                                       | 448,469              |              |            |          |         |                |          |          |         |        |          |          |       |    
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|                                                                                                                                                                           |                        |                                       | Loss from operations |              |            | (619,566 | )        |                |          | (208,927 | )        |        |          | (113,325 | )      |     |        | (3,934 | )
|Interest expense                                                                                                                                                           |                        |                                       | 139,878              |              |            |          | 82,283   |                |          |          | 14,797   |        |          |          |       |    
|Interest income                                                                                                                                                            |                        |                                       | 1,266                |              |            |          | 1,123    |                |          |          | 3,037    |        |          |          |       |    
|Other (expense) income, net                                                                                                                                                |                        |                                       | (70,152              | )            |            |          | (20,514  | )              |          |          | (7,744   | )      |          |          | (190   | )  
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|Loss before provision for income taxes, minority
    interest income, extraordinary loss on debt restructuring and
    cumulative effect of change in accounting principle |                        |                                       | (828,330             | )            |            |          | (310,601 | )              |          |          | (132,829 | )      |          |          | (4,124 | )  
|Provision for income taxes                                                                                                                                                 |                        |                                       | 2,111                |              |            |          |         |                |          |          |         |        |          |          |       |    
|Minority interest income                                                                                                                                                   |                        |                                       | 195                  |              |            |          | 628      |                |          |          | 497      |        |          |          |       |    
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|Loss before extraordinary loss on debt
    restructuring and cumulative effect of change in accounting
    principle                                                       |                        |                                       | (830,246             | )            |            |          | (309,973 | )              |          |          | (132,332 | )      |          |          | (4,124 | )  
|Extraordinary loss on debt restructuring                                                                                                                                   |                        |                                       | (4,479               | )            |            |          |         |                |          |          |         |        |          |          |       |    
|Cumulative effect of change in accounting
    principle                                                                                                                    |                        |                                       | (267,785             | )            |            |          |         |                |          |          |         |        |          |          |       |    
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|                                                                                                                                                                           |                        | Net loss                              |                      | $            | (1,102,510 | )        |          | $              | (309,973 | )        |          | $      | (132,332 | )        |        | $   | (4,124 | )     
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|Basic and diluted loss per common share before
    extraordinary loss on debt restructuring and cumulative effect
    of change in accounting principle                    |                        | $                                     | (7.00                | )            |            | $        | (2.66    | )              |          | $        | (1.43    | )      |          | $        | (0.05  | )  
|Extraordinary loss per common share on debt
    restructuring                                                                                                              |                        |                                       | (0.04                | )            |            |          |         |                |          |          |         |        |          |          |       |    
|Cumulative effect of change in accounting
    principle loss Per common share                                                                                              |                        |                                       | (2.26                | )            |            |          |         |                |          |          |         |        |          |          |       |    
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|Basic and diluted loss per common share                                                                                                                                    |                        | $                                     | (9.30                | )            |            | $        | (2.66    | )              |          | $        | (1.43    | )      |          | $        | (0.05  | )  
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    
|Weighted average common shares outstanding                                                                                                                                 |                        |                                       | 118,623              |              |            |          | 116,484  |                |          |          | 92,757   |        |          |          | 80,000 |    
|                                                                                                                                                                           |                        |                                       |                      |              |            |          |          |                |          |          |          |        |          |          |        |    

31



---



##### 



|                                                         |                 |              |          |         |         |      |         |         |           |   |         |         |           |   |         |   |         | 
|-------------------------------------------------------- | --------------- | ------------ | -------- | ------- | ------- | ---- | ------- | ------- | --------- | - | ------- | ------- | --------- | - | ------- | - | ------- | 
|                                                         |                 |             
|                                                         |                 | December 31,
|                                                         |                 |             
|                                                         |                 | 2002         |          | 2001    |         | 2000 |         | 1999   
|                                                         |                 |              |          |         |         |      |         |        
|BALANCE SHEET DATA:                                      |                 |              |          |         |         |      |         |         |           |   |         |         |           |   |         |  
|Cash and cash equivalents                                |                 | $            | 33,481   |         |         | $    | 28,186  |         |           | $ | 14,905  |         |           | $ | 51,301  |  
|Property and equipment, net                              |                 |              | 365,422  |         |         |      | 493,568 |         |           |   | 339,470 |         |           |   | 68,269  |  
|Goodwill                                                 |                 |              |         |         |         |      | 759,067 |         |           |   | 831,527 |         |           |   | 261,345 |  
|Other intangibles, net                                   |                 |              | 14,445   |         |         |      | 24,130  |         |           |   | 31,107  |         |           |   |        |  
|                                                         |                 | Total assets |          |         | 534,455 |      |         |         | 1,445,311 |   |         |         | 1,298,248 |   |         |   | 384,428 | 
|Long-term debt, including current maturities of
    Debt |                 |              | 892,789  |         |         |      | 662,142 |         |           |   | 209,954 |         |           |   | 2,114   |  
|Mandatorily Redeemable 15% Series B                      |                 |              |          |         |         |      |         |         |           |   |         |         |           |   |         |  
|                                                         | Preferred Stock |              |          | 248,734 |         |      |         | 215,232 |           |   |         | 186,205 |           |   |         |  |        
|Shareholders (deficit) equity                           |                 |              | (713,527 | )       |         |      | 398,087 |         |           |   | 778,687 |         |           |   | 373,794 |  

|                                                              |  |                                 |         |              |  |      |          |                |  |   |          |   |  |   |          |  
|------------------------------------------------------------- |  | ------------------------------- | ------- | ------------ |  | ---- | -------- | -------------- |  | - | -------- | - |  | - | -------- | -
|                                                              |  |                                 |         |              |  |      |          | For the period
|                                                              |  |                                 |         |              |  |      |          | from          
|                                                              |  |                                 |         |              |  |      |          | October 13,   
|                                                              |  |                                 |         |              |  |      |          | 1999          
|                                                              |  |                                 |         | (Inception) 
|                                                              |  | For the Year Ended December 31, |         | through     
|                                                              |  |                                 |         | December 31,
|                                                              |  | 2002                            |         | 2001         |  | 2000 |          | 1999          
|                                                              |  |                                 |         |              |  |      |          |               
|OTHER FINANCIAL DATA:                                         |  |                                 |         |              |  |      |          |                |  |   |          |   |  |   |          |  
|EBITDA (1)                                                    |  | $                               | (46,946 | )            |  | $    | (104,874 | )              |  | $ | (69,530  | ) |  | $ | (2,227   | )
|CAPEX (2)                                                     |  | $                               | 38,385  |              |  | $    | 245,777  |                |  | $ | 193,523  |   |  | $ | 6,422    |  
|Cash Flows Data:                                              |  |                                 |         |              |  |      |          |                |  |   |          |   |  |   |          |  
|Net cash flows (used in) provided by operating
    activities |  | $                               | (86,134 | )            |  | $    | (168,003 | )              |  | $ | (49,983  | ) |  | $ | 17       |  
|Net cash flows used in investing activities                   |  | $                               | (38,501 | )            |  | $    | (153,487 | )              |  | $ | (128,076 | ) |  | $ | (353,787 | )
|Net cash flows provided by financing activities               |  | $                               | 132,303 |              |  | $    | 335,525  |                |  | $ | 168,741  |   |  | $ | 377,980  |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We calculate EBITDA as loss from operations plus
    depreciation and amortization plus impairment loss on goodwill
    plus allowance for stockholder loan. Management believes EBITDA
    is meaningful to investors because they provide analyses of
    operating results using the same measures used by our chief
    operating decision makers. Our calculations of EBITDA may or may
    not be consistent with the calculation of these measures by
    other public companies. EBITDA should not be viewed by investors
    as an alternative to generally accepted accounting principles
    (GAAP) measures of income as a measure of performance or to
    cash flows from operating, investing and financing activities as
    a measure of liquidity. In addition, EBITDA does not take into
    account changes in certain assets and liabilities as well as
    interest and income taxes that can affect cash flows.
|   
|(2) | Includes property and equipment acquired through
    vendor financing arrangements of approximately
    $107.9 million during the year ended December 31,
    2001. We calculate CAPEX, or capital expenditures, as gross
    property and equipment purchased, net of deletions, but
    excluding translation adjustments resulting from our countries
    that use local currencies as functional currencies. Management
    believes that CAPEX is a meaningful measure used by our chief
    operating decision makers to measure our countries operational
    performance.                                                                                                                                                                                                                                                                                                                                                     

32



---



##### 



Summary of Selected Operating
Information

The following table sets forth selected unaudited
operating statistics by country as of December 31, 2002 (as
well as a comparison to 2001 totals).

|                                                |                      |           |        |        |       |       |        |          |     |      |        |         |     |         |        |        |       |  |        |       |       |  |         |       |       |  |         |       |       |  |       |      |     |  
|----------------------------------------------- | -------------------- | --------- | ------ | ------ | ----- | ----- | ------ | -------- | --- | ---- | ------ | ------- | --- | ------- | ------ | ------ | ----- |  | ------ | ----- | ----- |  | ------- | ----- | ----- |  | ------- | ----- | ----- |  | ----- | ---- | --- | -
|                                                |                      |           |        |        |       |       |        |          |     |      |        | AT&T    |     | AT&T    |        |       
|                                                |                      |           |        |        |       |       |        |          |     |      |        | Latin   |     | Latin   |        |       
|                                                |                      |           |        |        |       |       |        |          |     |      |        | America |     | America |        | %     
|                                                |                      |           |        |        |       |       |        |          |     |      |        | Totals  |     | Totals  |        | Annual
|                                                |                      | Argentina |        | Brazil |       | Chile |        | Colombia |     | Peru |        | 2002    |     | 2001    |        | Change
|                                                |                      |           |        |        |       |       |        |          |     |      |        |         |     |         |        |       
|Network route kilometers                        |                      |           |        |        |       |       |        |          |     |      |        |         |     |         |        |        |       |  |        |       |       |  |         |       |       |  |         |       |       |  |       |     
|                                                | Metropolitan         |           |        | 276    |       |       |        | 972      |     |      |        | 919     |     |         |        | 1,800  |       |  |        | 1,947 |       |  |         | 5,914 |       |  |         | 5,324 |       |  |       | 11.1 | %  
|                                                | Domestic (Long-haul) |           |        | 916    |       |       |        |         |     |      |        |        |     |         |        | 1,225  |       |  |        |      |       |  |         | 2,141 |       |  |         | 2,141 |       |  |       | 0.0  | %  
|                                                |                      |           |        |        |       |       |        |          |     |      |        |         |     |         |        |        |       |  |        |       |       |  |         |       |       |  |         |       |       |  |       |     
|                                                |                      | Total     |        |        | 1,192 |       |        |          | 972 |      |        |         | 919 |         |        |        | 3,025 |  |        |       | 1,947 |  |         |       | 8,055 |  |         |       | 7,465 |  |       |      | 7.9 | %
|Total fiber kilometers                          |                      |           | 48,277 |        |       |       | 69,780 |          |     |      | 22,551 |         |     |         | 61,071 |        |       |  | 39,612 |       |       |  | 241,291 |       |       |  | 219,941 |       |       |  | 9.7   | %   
|Number of buildings connected                   |                      |           | 498    |        |       |       | 1,049  |          |     |      | 1,012  |         |     |         | 2,333  |        |       |  | 2,594  |       |       |  | 7,486   |       |       |  | 6,423   |       |       |  | 16.5  | %   
|Ports in service                                |                      |           | 537    |        |       |       | 11,495 |          |     |      | 2,398  |         |     |         | 4,006  |        |       |  | 2,215  |       |       |  | 20,651  |       |       |  | 19,136  |       |       |  | 7.9   | %   
|Permanent virtual circuits active               |                      |           | 509    |        |       |       | 7,435  |          |     |      | 2,027  |         |     |         | 4,227  |        |       |  | 2,092  |       |       |  | 16,290  |       |       |  | 14,571  |       |       |  | 11.8  | %   
|Number of dedicated data and Internet customers |                      |           | 482    |        |       |       | 1,229  |          |     |      | 1,647  |         |     |         | 771    |        |       |  | 992    |       |       |  | 5,121   |       |       |  | 4,871   |       |       |  | 5.1   | %   
|Number of employees                             |                      |           | 156    |        |       |       | 256    |          |     |      | 211    |         |     |         | 141    |        |       |  | 260    |       |       |  | 1,024   | *     |       |  | 1,700   | *     |       |  | (39.7 | )%  



---



|  |                                                                                                                                                                                                                                                         
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 39 employees at corporate headquarters
    as of December 31, 2002, and 58 employees at corporate
    headquarters as of December 31, 2001. As of March 1,
    2003, there were 985 total employees excluding 27 at corporate
    headquarters.

Network route kilometers.Network route kilometers are the total
number of kilometers of fiber-optic cable installed in our
network. Network route kilometers include cable laid as a
backbone for the network, cable from the backbone to a building
and cable within a building to reach our customers
hardware at its premises. A measurement in route kilometers does
not take into account the number of strands of fiber in the
various fiber optic cables that make up our network or the type
of installation (e.g., underground or aerial).

Total fiber kilometers.Total fiber kilometers are network
route kilometers multiplied by the number of strands of fiber in
each of the cables that make up the network. By counting strands
of fiber, a measurement in fiber kilometers indicates the
maximum capacity of our cable. For example, one route kilometer
of 144-strand fiber optic backbone cable would count as 144
fiber kilometers, while one route kilometer of 12-strand
building access cable would count as only 12 fiber kilometers.

Buildings connected.The number of buildings connected
represents the number of enclosed fixed constructions of any
type, which are connected to our network using a customer access
circuit or a network access circuit.

Ports in service.A
port in service represents a physical point of interconnection
between a customers network and our network, regardless of
the ownership of the customer access circuit and the type of
service provided using the customer port. Typically, this
interconnection is provided via a router or other
network-terminating device connecting to a customers local
area network and/or private branch exchange.

Number of permanent virtual circuits (PVCs)
active.A permanent virtual circuit
represents a data connection, typically between two locations
such as a customers headquarters and an off-site branch or
other entity. We connect our customers to their networks by
deploying a port connection within, or near, the customers
premises. Each port can accommodate several permanent virtual
circuits. As a customer increases its usage of services, the
customer will obtain additional available transmission capacity
on the same installed port. The number of PVCs active represents
the number of permanent virtual circuits that have been
installed and are provided directly or indirectly by us to a
customer pursuant to an executed service contract in full force
and effect, which connects two extremes where customer traffic
originates and/or terminates. The demarcation of the circuit
excludes customer premise equipment.

33



---



##### 



Number of dedicated data and Internet
customers.The number of dedicated
data-Internet customers represents legal entities identified by
a unique tax-identification number with which we have an
effective contract with us for the provision of data and/or
Internet services.

Employees.The
number of employees excludes third-party contractor employees
and agents.



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion and analysis should
be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this
Annual Report on Form 10-K. This discussion and analysis
may contain forward-looking statements that involve risks,
uncertainties, and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of factors described under the heading
Forward-Looking Statements as well as other factors
described in this Annual Report on Form 10-K.

Critical Accounting Policies

Our critical accounting policies are those that
we believe require significant judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. A discussion of our critical accounting
policies, the underlying judgments and uncertainties affecting
their application and the likelihood that materially different
amounts would be reported under different conditions or using
different assumptions, is as follows:



| |                   
| | ------------------
| | Network Accounting

Our networks represent 68.3% and 34.1% as of
December 31, 2002 and 2001, respectively, of our total
assets. We use several critical accounting policies dealing with
our network accounting. First, we compute our networks
depreciation expense, which requires us to estimate the average
useful lives of each of our network components, as well as their
salvage values. Secondly, we account for network improvement
costs including salary of employees dedicated to the network
construction and improvement by capitalizing those costs which
we believe will add value to our networks and depreciate those
improvements over their estimated useful lives. Finally, we
recognize the resulting gain or loss on dispositions of our
network components in operations.

We determine the average useful lives of our
network based primarily on our estimates of the average useful
lives of the networks major components, such as
transmission and switching equipment, operating systems, cables
and underground construction. In addition, we consider, among
other things, the impact of anticipated technological changes.

Given the complex nature of our networks, all the
accounting estimates described above require considerable
judgment and are inherently uncertain. We do not have cost
segregation studies performed to specifically segregate our
networks into various components; therefore, our overall
estimates of the relative costs of these components are based
principally on general and technical information known about
major network components lives and our knowledge of the telecom
industry. In addition, we do not identify or track the
depreciation of specific components, but instead utilize
estimates when determining the net cost basis of assets being
replaced or refurbished. If materially different conditions
existed, or if we materially changed our assumptions of network
lives and salvage values, our depreciation expense, gain or loss
on replacement or refurbishment of network assets and net book
value of our networks could be materially different. In
addition, if we change our assumptions in making our
determination as to whether improvements to our networks add
value, the amounts we expense each year as repair and
maintenance costs could increase, partially offset by a decrease
in depreciation expense, as fewer costs would have been
initially capitalized to our networks. Finally, if we ceased to
operate as a going concern or underwent a material change in our
operations, the realizable value of our network assets could
differ significantly from the net book value set out in our
financial statements.

We believe that the estimates we made for network
accounting purposes are reasonable, our methods are consistently
applied and the resulting depreciation expense is based on a
rational and systematic method to

34



---



##### 



equitably allocate the costs of our networks to
the periods during which services are obtained from their use.
In addition, we believe that the estimates we made are
reasonable and our methods are consistently applied (1) in
determining the overall relative costs of our networks;
(2) in determining which improvement costs add value to our
networks; and (3) in determining the net cost basis of
networks components being replaced or refurbished. Finally, we
believe our critical network accounting policies are generally
comparable with those of other major telecom companies.




| |                    
| | -------------------
| | Goodwill Impairment

Our review of our long-lived assets, principally
goodwill and other intangibles, requires us to initially
estimate the undiscounted future cash flow of our business
segments whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be fully
recoverable. If such analysis indicates that a possible
impairment may exist, we are required to then estimate the fair
value of the asset, principally determined either by third party
appraisals, sales price negotiations or estimated discounted
future cash flows, which includes making estimates of the timing
of the future cash flows and discount rates and reflecting
varying degrees of perceived risk. During 2002 after applying
the foregoing procedure, we concluded that an impairment
existed. Accordingly, we recognized an impairment charge of
$716.3 million, reducing goodwill to zero.

The determination of fair value includes numerous
uncertainties. Significant judgments are made concerning future
revenue, operating, selling, general and administrative costs
per business segment. In addition, third party appraisers are
sometimes used to determine fair values and some of their
valuation methodologies are also subject to similar types of
uncertainties. We believe that we have made reasonable estimates
and judgments in determining whether our goodwill has been
impaired; however, a material change in the assumptions used in
our determination of fair values or a material change in the
conditions or circumstances influencing fair value, may require
us to recognize a different impairment charge.



| |                               
| | ------------------------------
| | Contingencies 
    Litigation

From time to time in the normal course of
business, we are subject to proceedings, lawsuits and other
claims. We periodically assess the potential liabilities related
to any lawsuits or claims brought against us. While it is
typically very difficult to determine the timing and ultimate
outcome of these actions, we use our best judgment to determine
if it is probable that we will incur an expense related to the
settlement or final adjudication of such matters and whether a
reasonable estimation of such probable loss, if any, can be made.

Given the inherent uncertainty related to the
eventual outcome of litigation, it is possible that all or some
of these matters may be resolved for amounts materially
different from any provisions that we may have made with respect
to their resolution.



| |        
| | -------
| | Revenue

We recognize data-internet services revenue when
the services are provided in accordance with contract terms. We
recognize long distance and local voice and data services
revenue based upon minutes of traffic processed or contracted
fee schedules. This includes amounts collected in advance for
sales of prepaid calling cards. We recognize other products
revenue when the products are delivered and accepted by
customers.



| |            
| | -----------
| | Derivatives

In the past we have entered into derivative
contracts from time to time to mitigate market risk from changes
in foreign currency exchange rates. Generally, fair value
calculations of derivative contracts such as foreign exchange
forwards require judgment and are valued based on market
interest rates and foreign exchange rates.

35



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##### 



Overview

We provide communications services under the
AT&T brand to major metropolitan business
centers in Argentina, Brazil, Chile, Colombia and Peru. Our
local, domestic and international communications services
include, among others, data-Internet, local and long distance
voice, web hosting and managed services. We focus primarily on
business customers with growing and diverse communications
needs. These customers include multinational corporations,
financial services companies, media and content providers,
technology companies, government entities, Internet service
providers and communications carriers, as well as small and
medium size businesses. We deliver our services mainly through
our own technologically advanced networks, which interconnect
with other providers networks. In addition, we use our
installed network infrastructure to offer services to carriers,
including inbound domestic and regional voice termination
services and connectivity services. We also serve in the mass
market through various distribution channels, offering domestic
and international long distance, calling and prepaid cards and
dial-up Internet services. These opportunities remain attractive
because they provide additional revenues and margin as well as
utilization of our existing network capacity.

We were incorporated in October 1999 by AT&T
Corp. The countries in which we may operate under our
certificate of incorporation and the terms of our Regional
Vehicle Agreement with AT&T Corp., dated as of
August 28, 2000 (filed with our Annual Report on
Form 10-K dated April 2, 2001) include the countries
in South America and the Caribbean plus Panama, but excluding
Cuba and Venezuela. Our operations are conducted through
subsidiaries organized under the laws of the applicable country
in which the operations take place.

Basis of Presentation.Our consolidated financial statements
reflect operations for the years ended December 31, 2002,
2001 and 2000, in accordance with accounting principles
generally accepted in the United States of America. The
consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
the satisfaction of liabilities and commitments in the normal
course of business. The appropriateness of using the going
concern basis in the future, however, will be dependent upon our
ability to address our anticipated liquidity needs as described
below in Recent Events. There is no assurance that
we will be able to address our liquidity needs through the
measures described below on acceptable terms and conditions, or
at all, and, accordingly, there is substantial doubt about our
ability to continue as a going concern.

Recent Events  Restructuring
Activities

From our inception in 1999 until late 2002, we
supported our growth plan through a combination of financing
facilities from our parent company, AT&T Corp., senior
secured financing from our strategic equipment vendors and other
financing facilities obtained from suppliers and from local
sources in the countries in which we operate. Our business plan
during that period was dependent on the availability of such
financing to finance growth until we were able to reach a
positive cash flow.

In October 2002, we announced that, due to a
combination of factors, including the unavailability of certain
expected financing sources, the likely acceleration of certain
debt service obligations and continued weak economic conditions
in the Latin American region, particularly in Brazil and
Argentina, we would incur a funding gap under our then-existing
business plan. Also in late 2002, we did not attain certain
covenant targets for minimum revenues and earnings before
interest, taxes, depreciation and amortization, or EBITDA,
specified in our secured financing facility, and we were
informed by our secured lenders that we would not have access to
undrawn amounts under that facility. We also were informed that
we could no longer draw upon unused portions of our local
financing facilities.

Based upon these developments, in November 2002
we commenced a comprehensive business and financial
restructuring and retained an affiliate of AlixPartners LLC, a
recognized adviser in turnaround situations, to assist us in the
restructuring process. Although the outcome of our restructuring
process is uncertain, we believe it is unlikely that any
outcome, whether pursuant to a court-supervised or as a result
of an out-of-court restructuring or sale of our business, will
result in any value being attributed to or consideration payable
for our common stock.

36



---



##### 



Our restructuring efforts are focused on
positioning AT&T Latin America for longer-term, profitable
growth with conservative expectations regarding access to
capital and external funding. Specifically, we are positioning
the Company to be cash flow self-sufficient on an operating
basis. We believe that reaching and sustaining positive cash
flow is essential to restructuring our debt successfully and
funding our future operations, including potential future growth
in our operations and revenues.

At the core of our restructuring efforts is an
evolution in our business focus:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | From revenue growth as a primary driver, to
    profit and cash maximization;                                                                                                                                              
|
| |  | From new customer growth, to new customers that
    meet minimum cash payback and profit criteria;                                                                                                                         
|
| |  | From continued build-out of our network
    infrastructure, to maximizing the potential of our existing
    network by selling to customers that are already on our network
    or proximate to our network facilities; and
|
| |  | From an overhead cost structure oriented to a
    high revenue-growth business model, to a significantly reduced
    structure more in line with a focus on cash preservation and
    cash flow.                           

We expect continued tight capital markets and
limited access to funding. In that environment, we believe our
change in focus will allow us to continue to exploit our key
competitive strengths and existing investments to maximize
returns from our network.

Strategically, our restructuring efforts have
centered on five key elements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Become a low-cost provider of
    services:Our technologically advanced
    network allows us to provide high-quality services at variable
    costs that we believe are competitive with any provider in the
    region. We can offer incremental services or bandwidth to our
    customers with minimal additional expense or capital investment.
    Additionally, as we refocus our business model on more modest,
    profitable growth, we have reduced significant overhead
    expenses. These reductions have occurred in every area of our
    overhead (people, advertising, real estate, etc.). Finally, we
    are working with our vendor partners to reduce our network
    operating expenses. We are renegotiating contracts and
    capacities to more appropriately reflect our volume needs and
    our financial requirements.
|
| |  | Increase the quality of
    revenue:Since our inception in 1999,
    we have generated significant quarter-over-quarter sales growth.
    However, we believe that maintaining high revenue growth would
    require working capital that exceeds our current capital and
    cash sources. Consequently, we are focusing on maximizing our
    return from current customers, and ensuring that new customer
    relationships meet rigorous profitability and cash flow
    benchmarks that are consistent with a self-sufficient growth
    model.                                                                                                                                                                                                                                                                                               
|
| |  | Reduce capital
    expenditures:From 1999 through the
    first half of 2002, we deployed significant capital expenditures
    to develop our advanced network, covering concentrations of
    business districts in 17 major cities in Latin America. At this
    time, although attractive investment opportunities do exist, our
    lack of access to new capital dictates that we dramatically
    reduce capital expenditures and maximize the business
    opportunity within the proximity of our existing network. We
    estimate that our existing networks provide access to
    approximately 39,000 business customers located in buildings we
    have wired, of which approximately 5,100 are customers today.                                                                                                                      
|
| |  | Maintain High Quality Services and Customer
    Care:We will continue to invest in
    our network to maintain service quality and reliability and to
    continue improvement in customer care. We believe that we have
    become recognized for service quality and responsiveness to
    customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Focus on Strict Cash
    Management:We have assumed that we
    will not have access to external funding sources in the near
    term and have established more rigorous cash management
    processes and mechanisms Our priorities are to continue
    providing high-quality service to our customers and while
    managing our cash to sustain operations and provide for modest
    growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                   

While our restructuring activities have been
successful to date in expanding our strategic options and
stabilizing our business, we expect we will require additional
capital investment to finance additional growth

37



---



##### 



while maintaining a strong cash position.
Therefore, since the fourth quarter of 2002, in parallel with
our restructuring activities, we have been working to identify
strategic or financial investors that may acquire all or a
portion of our Company.


In January 2003, AT&T Corp. announced that it
had entered into a non-binding letter of intent to sell its
interest in us for a nominal price to a telecommunications
holding company. We also have received expressions of interest
from a number of other qualified strategic and financial
investors. We will continue to pursue all strategic options for
the Company that serve our objective of maximizing value for our
constituents.

In February 2003 we retained Greenhill & Co.
LLC as our financial adviser to assist us in exploring
opportunities with strategic and financial investors. We believe
that the Company represents a unique telecommunications asset in
our region, with a strong and attractive customer base.
Moreover, we believe that our integrated regional approach and
modern ATM/ IP metropolitan networks make us a scalable platform
upon which to drive further consolidation in our industry in the
South American region. Given continued difficult conditions in
the telecom sector, however, we cannot assure that we will
succeed in consummating a sale or investment transaction on
terms satisfactory to our constituents, if at all.

Goodwill Impairment

Effective January 1, 2002, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 stops the amortization of our goodwill, which
is allocated through our country operations, and requires an
annual, or when events or circumstances dictate a more frequent,
impairment review of our goodwill. Accordingly, as of
January 1, 2002, we no longer amortize our goodwill. We
have recorded a transitional impairment loss of
$267.8 million as of January 1, 2002. We have also
recorded additional impairments of $413.5 million and
$35.0 million during the third and fourth quarters of 2002,
respectively, reducing goodwill to zero. See Note 10 in the
Notes to Consolidated Financial Statements.

Results of Operations

The following table includes a summary of actual
results of operations for the periods indicated below. Unaudited
pro forma results for the year 2000 have been presented to show
our results of operations giving effect to the FirstCom merger
and the Keytech acquisitions as if the transactions had been
completed as of the beginning of 2000. The unaudited pro forma
results of operations herein presented include certain
adjustments as follows: FirstComs tender offer and consent
solicitation for its 14% senior notes, resulting in a reduction
of interest expense of $14.5 million in 2000; the issuance
to Global Card Holdings, Inc. (a wholly-owned subsidiary of
AT&T Corp.) of 100,000 shares of Mandatorily Redeemable 15%
Series B Preferred Stock (in connection with the financing
of the tender offer), resulting in an increase of interest
expense of $17.5 million in 2000; additional goodwill
amortization expense of $22.4 million in 2000; and additional
selling, general and administrative expenses of
$0.7 million in 2000, related to employment arrangements
with our Chief Executive Officer. The unaudited pro forma
financial information is presented for informational purposes
only and is not necessarily indicative of the future results of
operations or financial position of AT&T Latin

38



---



##### 



America or the results of operations or financial
position of AT&T Latin America that would have been achieved
had the acquisitions occurred at the beginning of 2000.


AT&T Latin America Corp.

Consolidated Statements of
Operations


|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------- | -------- | ---------- | - | ---- | -------- | --------- | - | - | -------- | -------- | - | - | -------- | -------- | -
|                                                                                                                                                                           |                      |                                      
|                                                                                                                                                                           |                      | Year Ended December 31,              
|                                                                                                                                                                           |                      |                                      
|                                                                                                                                                                           |                      | 2002                                  |          | 2001       |   | 2000 |          | 2000     
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |          
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          | Pro Forma
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          | Unaudited
|                                                                                                                                                                           |                      |                                      
|                                                                                                                                                                           |                      | (In thousands, except per share data)
|Revenue                                                                                                                                                                    |                      | $                                     | 165,593  |            |   | $    | 150,910  |           |   | $ | 52,235   |          |   | $ | 89,247   |         
|Cost of revenue                                                                                                                                                            |                      |                                       | 103,611  |            |   |      | 120,112  |           |   |   | 54,070   |          |   |   | 73,470   |         
|Selling, general and administrative expenses                                                                                                                               |                      |                                       | 119,319  |            |   |      | 135,672  |           |   |   | 67,695   |          |   |   | 107,949  |         
|Depreciation and amortization                                                                                                                                              |                      |                                       | 113,760  |            |   |      | 104,053  |           |   |   | 43,795   |          |   |   | 75,115   |         
|Impairment loss on goodwill                                                                                                                                                |                      |                                       | 448,469  |            |   |      |         |           |   |   |         |          |   |   |         |         
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|                                                                                                                                                                           | Loss from operations |                                       |          | (619,566   | ) |      |          | (208,927  | ) |   |          | (113,325 | ) |   |          | (167,287 | )
|Interest expense                                                                                                                                                           |                      |                                       | 139,878  |            |   |      | 82,283   |           |   |   | 14,797   |          |   |   | 36,392   |         
|Interest income                                                                                                                                                            |                      |                                       | 1,266    |            |   |      | 1,123    |           |   |   | 3,037    |          |   |   | 3,037    |         
|Other (expense) income, net                                                                                                                                                |                      |                                       | (70,152  | )          |   |      | (20,514  | )         |   |   | (7,744   | )        |   |   | (6,311   | )       
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|Loss before provision for income taxes, minority
    interest income, extraordinary loss on debt restructuring and
    cumulative effect of change in accounting principle |                      |                                       | (828,330 | )          |   |      | (310,601 | )         |   |   | (132,829 | )        |   |   | (206,953 | )       
|Provision for income taxes                                                                                                                                                 |                      |                                       | 2,111    |            |   |      |         |           |   |   |         |          |   |   |         |         
|Minority interest income                                                                                                                                                   |                      |                                       | 195      |            |   |      | 628      |           |   |   | 497      |          |   |   | 717      |         
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|Loss before extraordinary loss on debt
    restructuring and cumulative effect of change in accounting
    principle                                                       |                      |                                       | (830,246 | )          |   |      | (309,973 | )         |   |   | (132,332 | )        |   |   | (206,236 | )       
|Extraordinary loss on debt restructuring                                                                                                                                   |                      |                                       | (4,479   | )          |   |      |         |           |   |   |         |          |   |   |         |         
|Cumulative effect of change in accounting
    principle                                                                                                                    |                      |                                       | (267,785 | )          |   |      |         |           |   |   |         |          |   |   |         |         
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|                                                                                                                                                                           | Net loss             |                                       | $        | (1,102,510 | ) |      | $        | (309,973  | ) |   | $        | (132,332 | ) |   | $        | (206,236 | )
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|Basic and diluted loss per common share before
    extraordinary loss on debt restructuring and cumulative effect
    of change in accounting principle                    |                      | $                                     | (7.00    | )          |   | $    | (2.66    | )         |   | $ | (1.43    | )        |   | $ | (1.77    | )       
|Extraordinary loss per common share on debt
    restructuring                                                                                                              |                      |                                       | (0.04    | )          |   |      |         |           |   |   |         |          |   |   |         |         
|Cumulative effect of change in accounting
    principle loss per common share                                                                                              |                      |                                       | (2.26    | )          |   |      |         |           |   |   |         |          |   |   |         |         
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|Basic and diluted loss per common share                                                                                                                                    |                      | $                                     | (9.30    | )          |   | $    | (2.66    | )         |   | $ | (1.43    | )        |   | $ | (1.77    | )       
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|Weighted average common shares outstanding                                                                                                                                 |                      |                                       | 118,623  |            |   |      | 116,484  |           |   |   | 92,757   |          |   |   | 116,096  |         
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         
|EBITDA (Excludes $10.4 million of allowance
    for stockholder loan included in selling, general and
    administrative expenses in 2002)                                 |                      | $                                     | (46,946  | )          |   | $    | (104,874 | )         |   | $ | (69,530  | )        |   | $ | (92,172  | )       
|                                                                                                                                                                           |                      |                                       |          |            |   |      |          |           |   |   |          |          |   |   |          |         

39



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##### 



The following table includes revenue by country
and consolidated operating loss in dollars and as a percentage
of consolidated revenue for the three years ended
December 31, 2002, 2001 and 2000:

|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |      |        |    |        |        |          |   |        |      |        |    |         |        |          |   |        |      |        |   
|-------------------------------------------- | --------- | ----------------------- | ------- | ------ | -------- | ---- | ------ | ---- | ------ | ---- | ------- | ------ | -------- | --------- | ----- | ---- | ------ | -- | ------ | ------ | -------- | - | ------ | ---- | ------ | -- | ------- | ------ | -------- | - | ------ | ---- | ------ | --
|                                             |           |                        
|                                             |           | Year Ended December 31,
|                                             |           |                        
|                                             |           | 2002                    |         | %      |          | 2001 |        | %    |        | 2000 |         | %      |          | 2000      |       | %   
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |     
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |          
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          | Pro Forma
|                                             |           |                        
|                                             |           | ($s in thousands)     
|                                             |           | (Unaudited)            
|Revenue:                                     |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |      |        |    |        |        |          |   |        |      |        |    |         |        |          |   |        |     
|                                             | Argentina |                         | $       | 20,218 |          |      |        | 12.2 | %      |      | $       | 18,003 |          |           |       | 11.9 | %      |    | $      | 518    |          |   |        | 1.0  | %      |    | $       | 802    |          |   |        | 0.9  | %     
|                                             | Brazil    |                         |         | 50,756 |          |      |        | 30.7 | %      |      |         | 46,592 |          |           |       | 30.9 | %      |    |        | 27,961 |          |   |        | 53.6 | %      |    |         | 27,961 |          |   |        | 31.3 | %     
|                                             | Chile     |                         |         | 33,386 |          |      |        | 20.2 | %      |      |         | 37,949 |          |           |       | 25.1 | %      |    |        | 12,187 |          |   |        | 23.3 | %      |    |         | 33,728 |          |   |        | 37.8 | %     
|                                             | Colombia  |                         |         | 23,417 |          |      |        | 14.1 | %      |      |         | 15,441 |          |           |       | 10.2 | %      |    |        | 3,465  |          |   |        | 6.6  | %      |    |         | 9,202  |          |   |        | 10.3 | %     
|                                             | Peru      |                         |         | 42,729 |          |      |        | 25.8 | %      |      |         | 34,830 |          |           |       | 23.1 | %      |    |        | 8,104  |          |   |        | 15.5 | %      |    |         | 20,638 |          |   |        | 23.1 | %     
|                                             | Other     |                         |         | (4,913 | )        |      |        | (3.0 | )%     |      |         | (1,905 | )        |           |       | (1.2 | )%     |    |        |       |          |   |        |     |        |    |         | (3,084 | )        |   |        | (3.4 | )%    
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |      |        |    |        |        |          |   |        |      |        |    |         |        |          |   |        |     
|                                             |           | Total revenue           |         |        | 165,593  |      |        |      | 100.0  | %    |         |        | 150,910  |           |       |      | 100.0  | %  |        |        | 52,235   |   |        |      | 100.0  | %  |         |        | 89,247   |   |        |      | 100.0  | % 
|Cost of revenue                              |           |                         | 103,611 |        |          |      | (62.6  | )%   |        |      | 120,112 |        |          |           | (79.6 | )%   |        |    | 54,070 |        |          |   | (103.5 | )%   |        |    | 73,470  |        |          |   | (82.3  | )%  
|Selling, general and Administrative expenses |           |                         | 119,319 |        |          |      | (72.1  | )%   |        |      | 135,672 |        |          |           | (89.9 | )%   |        |    | 67,695 |        |          |   | (129.6 | )%   |        |    | 107,949 |        |          |   | (121.0 | )%  
|Depreciation and amortization                |           |                         | 113,760 |        |          |      | (68.7  | )%   |        |      | 104,053 |        |          |           | (69.0 | )%   |        |    | 43,795 |        |          |   | (83.8  | )%   |        |    | 75,115  |        |          |   | (84.2  | )%  
|Impairment loss on goodwill                  |           |                         | 448,469 |        |          |      | (270.8 | )%   |        |      |        |        |          |           |      |      |        |    |       |        |          |   |       |      |        |    |        |        |          |   |       |     
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |      |        |    |        |        |          |   |        |      |        |    |         |        |          |   |        |     
|                                             |           | Loss from operations    |         | $      | (619,566 | )    |        |      | (374.2 | )%   |         | $      | (208,927 | )         |       |      | (138.4 | )% |        | $      | (113,325 | ) |        |      | (216.9 | )% |         | $      | (167,287 | ) |        |      | (187.4 | )%
|                                             |           |                         |         |        |          |      |        |      |        |      |         |        |          |           |       |      |        |    |        |        |          |   |        |      |        |    |         |        |          |   |        |     

Year Ended December 31, 2002 Compared to
Year Ended December 31, 2001

|         |                        |                         |   |         |         |   |   |        |         |  |   |        |        |  |  |      |     |  
|-------- | ---------------------- | ----------------------- | - | ------- | ------- | - | - | ------ | ------- |  | - | ------ | ------ |  |  | ---- | --- | -
|         |                        |                         |   |        
|         |                        | Year Ended December 31, |   | Change 
|         |                        |                         |   |        
|         |                        | 2002                    |   | 2001    |         | $ |   | %     
|         |                        |                         |   |         |         |   |   |       
|         |                        |                        
|         |                        | ($s in thousands)     
|         |                        | (Unaudited)            
|Revenue: |                        |                         |   |         |         |   |   |        |         |  |   |        |        |  |  |     
|         | Data-Internet services |                         | $ | 103,354 |         |   | $ | 88,118 |         |  | $ | 15,236 |        |  |  | 17.3 | %  
|         | Voice services         |                         |   | 62,239  |         |   |   | 62,792 |         |  |   | (553   | )      |  |  | (0.9 | )% 
|         |                        |                         |   |         |         |   |   |        |         |  |   |        |        |  |  |     
|         |                        | Total revenue           |   | $       | 165,593 |   |   | $      | 150,910 |  |   | $      | 14,683 |  |  |      | 9.7 | %

Revenue.Revenue for
the year ended December 31, 2002 was $165.6 million,
compared to revenue of $150.9 million for the same period
in 2001, representing an increase of $14.7 million or 9.7%.
We experienced revenue increases in all our country operations
except Chile. The increase in revenue resulted from increases in
customers and ports in service, which reflected increased
selling of services to both existing customers and new
customers. This revenue increase was offset by a reduction of
voice-wholesale revenue in Chile and the translation effect of
the weakening of the Argentina peso and the Brazilian real
against the U.S. dollar, which devaluated 70.1% and 34.3%,
respectively, when compared to the same period in 2001.

Our data-Internet services revenue grew from
$88.1 million during the year ended December 31, 2001,
to $103.4 million for the same period in 2002, representing
an increase of $15.2 million or 17.3%. The increase in our
data-Internet services was mainly due to increased demand for
our services from our existing business customers and to an
increase in our customer base, offset by decreases caused by
deterioration in the value of local currencies against the U.S.
dollar. Data-Internet services accounted for 62.4% of our
revenue during the year ended December 31, 2002.

40



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Revenue from voice services decreased from
$62.8 million during the year ended December 31, 2001
to $62.2 million for the same period in 2002, representing
a decrease of $0.6 million or 0.9%. The decrease in our
voice-related revenue was mainly due to a reduction of
voice-wholesale revenue in Chile for the period and the
translation effect of the weakening of foreign currency exchange
rates versus the U.S. dollar in Argentina.

Cost of Revenue.Cost of revenue was
$103.6 million for the year ended December 31, 2002,
compared to $120.1 million for the same period in 2001,
representing a decrease of $16.5 million or 13.7%. Cost of
revenue consists of leased line costs, interconnection costs,
maintenance costs, and network and operating system costs,
including certain labor and other direct costs. The decrease in
cost of revenue was driven by lower-cost leased lines in Brazil
as a result of new supplier agreements signed early in the year,
lower labor costs from decreased network headcount, as well as
lower reported cost of revenue in U.S. dollar terms in Argentina
and Brazil due to the translation effect of the weakening of
their local currencies compared to the U.S. dollar. We expect to
continue to benefit from lower pricing from third party network
providers, or from termination and substitution of non-cost
effective contracts in late 2002 and early 2003.

Selling, General and Administrative Expenses.Selling, general and administrative
expenses were $119.3 million during the year ended
December 31, 2002, compared to $135.7 million for the
same period in 2001, representing a decrease of
$16.4 million or 12.1%. The decrease in selling, general
and administrative expenses resulted primarily from the
translation effect of the weakening of the Argentina peso and
the Brazilian real compared to the U.S. dollar in the first part
of 2002, and lower headcount when compared to the same period in
2001, offset in part by an increase in statutory and contractual
severance payments made to terminated employees. For the full
year 2002, SG&A increased due to a $10.4 million
reserve for a stockholder loan to our chief executive officer
secured by shares of our common stock which we believe have no
realizable value, restructuring charges of $7.3 million
associated with our head-count reduction and professional fees,
office and employee relocation expenses of $2.6 million,
$2.0 million related to early cancellation of operating
leases and $0.3 million related to tax gross-up obligations
under the Companys deferred compensation plan (which was
terminated in early 2003). We anticipate selling, general and
administrative expenses incurred in the ordinary course will
decrease in the near term as a result of further cost
improvement initiatives and the end of severance obligations
with respect to employees terminated, as well as additional
measures that may be undertaken in order to preserve cash to
improve the Companys liquidity situation. However, we
expect these reductions will be offset by higher professional
fees and expenses relating to our restructuring initiatives,
creditor negotiations and sale process. Selling, general and
administrative expenses are comprised primarily of compensation,
professional fees, travel expenses, marketing, office space and
indirect labor expenses.

EBITDA.We calculate
EBITDA as loss from operations plus depreciation and
amortization expense plus impairment loss on goodwill plus
allowance for stockholder loan. EBITDA for the year ended
December 31, 2002, was $(46.9) million, compared to EBITDA
of $(104.9) million for the same period in 2001. Our operations
in Colombia and Peru had a combined $4.9 million positive
EBITDA for the year ended 2002. All other countries EBITDA
was negative. The improvement in EBITDA as a percentage of
revenue reflects the increased utilization of our network as the
number of customers and buildings connected increased and a
higher number of services provided to existing customers as well
as lower cost of revenue and selling and general administrative
expenses when compared to 2001.

Depreciation and Amortization.Depreciation and amortization was
$113.8 million during the year ended December 31, 2002,
compared to $104.1 million for the same period in 2001,
representing an increase of $9.7 million, or 9.3%. This
increase was attributable to incremental depreciation and
amortization expense of approximately $40.2 million on
certain non-core assets and excess property and equipment not
deployed in our countries operations, offset by the
adoption of SFAS 142, under which we no longer amortize goodwill
but instead review it annually (or more frequently if impairment
indicators arise) for impairment. If goodwill amortization would
not have been recorded in the year ended December 31, 2001,
then our year ended December 31, 2001 adjusted depreciation
would have been $60.4 million, compared to the reported
$104.1 million for the year ended December 31, 2001.

41



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Impairment loss on
goodwill.During the year ended
December 31, 2002, we recorded a goodwill impairment of
$448.5 million. In connection with the Companys
review of its business plan, anticipated future cash flows of
our country operations, market capitalization based on the
trading price of our shares of Class A common stock as of
the valuation date and the general economic conditions in
countries in which we operate, we determined an impairment in
our recorded amount of goodwill occurred as follows:
Brazil  $88.5 million, Chile$ 
195.0 million, Colombia  $50.0 million and
Peru  $115.0 million.

Interest Expense.Interest expense was $139.9 during the
year ended December 31, 2002, compared to
$82.3 million during the same period in 2001, representing
an increase of $57.6 million or 70.0%. This increase in
interest expense was due mainly to higher debt outstanding
during the period, higher interest rates on the restructured
AT&T Corp. loans and the recognition of approximately
$13.9 million as interest expense (previously deferred) in
connection with the termination of the Senior Secured Vendor
Financing. Interest expense is comprised mainly of dividends
related to our Mandatorily Redeemable 15% Series B
Cumulative Preferred Stock and interest expense related to our
subordinated credit facility with AT&T Corp., our senior
secured vendor financing, notes payable to other vendors and
other bank facilities.

Other (Expense) Income, Net.Other (expense) income, net was
$70.2 million of expense for the year ended December 31,
2002, compared to $20.5 million of expense for the same period
in 2001, representing an increase of $49.6 million. During
the year ended December 31, 2002, we discontinued cash flow
hedge accounting for certain forward contracts resulting in a
charge to other expense of $42.2 million. The remaining
components of other expense were foreign currency transaction
losses, fair value changes on our undesignated forward
contracts, and other non-operating expenses.

Net Loss.Net loss
was $1,102.5 million for the year ended December 31,
2002, compared to net loss of $309.9 million for the same
period in 2001, representing an increase of $780.4 million.
The increase in net loss was mainly due to the impairment loss
on goodwill including the cumulative effect of change in
accounting principle of $716.3 million, incremental
depreciation and amortization expense on non-core assets and
excess property and equipment of $40.2 million and the
discontinuance of cash flow hedge accounting for certain forward
contracts which resulted in charges of $42.2 million,
compared to the same period on 2001. Assuming we continue to
operate as a going-concern business we expect to continue to
incur net losses in the next several years.

Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000

|         |                        |                     |   |        |         |   |   |        |        |  |   |        |        |  |  |       |       |  
|-------- | ---------------------- | ------------------- | - | ------ | ------- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | ----- | ----- | -
|         |                        |                     |   |        |         |  
|         |                        | Year Ended December |   |       
|         |                        | 31,                 |   | Change
|         |                        |                     |   |       
|         |                        | 2001                |   | 2000   |         | $ |   | %     
|         |                        |                     |   |        |         |   |   |       
|         |                        |                    
|         |                        | ($s in thousands) 
|         |                        | (Unaudited)        
|Revenue: |                        |                     |   |        |         |   |   |        |        |  |   |        |        |  |  |      
|         | Data-Internet services |                     | $ | 88,118 |         |   | $ | 41,368 |        |  | $ | 46,750 |        |  |  | 113.0 | %    
|         | Voice services         |                     |   | 62,792 |         |   |   | 10,867 |        |  |   | 51,925 |        |  |  | 477.8 | %    
|         |                        |                     |   |        |         |   |   |        |        |  |   |        |        |  |  |      
|         |                        | Total revenue       |   | $      | 150,910 |   |   | $      | 52,235 |  |   | $      | 98,675 |  |  |       | 188.9 | %
|         |                        |                     |   |        |         |   |   |        |        |  |   |        |        |  |  |      

Our results of operations for the year ended
December 31, 2001 include a full year of operations of
AT&T Latin America, Netstream (now known as AT&T do
Brasil), Keytech (now known as AT&T Argentina) and FirstCom
(now known as AT&T Chile, AT&T Colombia and AT&T
Peru). Our results of operations for the year ended
December 31, 2000 include a full year of operations of
AT&T Latin America and AT&T do Brasil, six months of
operations of AT&T Argentina, since July 1, 2000, and
four months of operations of AT&T Chile, AT&T Colombia
and AT&T Peru, since August 28, 2000.

Increases in revenue, cost of revenue, selling,
general and administrative expenses, depreciation and
amortization were mainly due to the inclusion of twelve months
of operations in 2001 when compared to 2000, which only includes
the operations of AT&T Argentina, AT&T Chile, AT&T
Colombia and AT&T Peru since their respective acquisition
dates.

42



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##### 



Year Ended December 31, 2001 compared to
Pro Forma Year Ended December 31, 2000

Because our historical financial information
prior to 2001 is limited, in order to provide a meaningful
presentation of our results of operations, the following
discussion and analysis presents the unaudited pro forma results
of operations of AT&T Latin America, Keytech, and FirstCom
as if the companies had been combined as of the beginning of the
periods presented. The unaudited pro forma results of operations
herein presented include certain adjustments as follows:
FirstComs tender offer and consent solicitation for its
14% senior notes, resulting in a reduction of interest expense
of $14.5 million in 2000; the issuance to Global Card
Holdings, Inc. (a wholly-owned subsidiary of AT&T Corp.) of
100,000 shares of Mandatorily Redeemable 15% Series B
Preferred Stock (in connection with the financing of the tender
offer), resulting in an increase of interest expense of
$17.5 million in 2000; additional goodwill amortization
expense of $22.4 million in 2000; and additional selling
general and administrative expenses of $0.7 million in
2000, resulting from employment arrangements with our Chief
Executive Officer.

|        |                        |                    |   |           |         |   |   |        |        |  |   |        |        |  |  |      |      |  
|------- | ---------------------- | ------------------ | - | --------- | ------- | - | - | ------ | ------ |  | - | ------ | ------ |  |  | ---- | ---- | -
|        |                        |                    |   |           |         |  
|        |                        | For the Year Ended |   |          
|        |                        | December 31,       |   | Change   
|        |                        |                    |   |          
|        |                        | 2001               |   | 2000      |         | $ |   | %     
|        |                        |                    |   |           |         |   |   |       
|        |                        | Actual             |   | Pro forma |         |   |   |       
|        |                        |                   
|        |                        | Unaudited         
|        |                        | (in thousands)    
|Revenue |                        |                    |   |           |         |   |   |        |        |  |   |        |        |  |  |     
|        | Data-internet services |                    | $ | 88,118    |         |   | $ | 53,523 |        |  | $ | 34,595 |        |  |  | 64.6 | %   
|        | Voice services         |                    |   | 62,792    |         |   |   | 35,724 |        |  |   | 27,068 |        |  |  | 75.8 | %   
|        |                        |                    |   |           |         |   |   |        |        |  |   |        |        |  |  |     
|        |                        | Total revenue      |   | $         | 150,910 |   |   | $      | 89,247 |  |   | $      | 61,663 |  |  |      | 69.1 | %

Revenue.Revenue for
the year ended December 31, 2001 was $150.9 million
compared to pro forma revenue of $89.2 million for the same
period in 2000, representing an increase of $61.7 million
or 69.1%. This increase in revenue was mainly attributed to our
Argentina, Brazil and Peru operations, which combined accounted
for $50.0 million or 81.1% of the total pro forma revenue
increase. Revenue increase resulted from increases in customers
and ports in service connected, which reflected increased
selling of services to both existing customers and new customers.

Our data-internet services segment grew from a
pro forma $53.5 million during the year ended
December 31, 2000, to $88.1 million for the same
period in 2001, representing an increase of $34.6 million
or 64.6%. The increase in our data-internet services was mainly
due to an increase in our customer base and continued increased
demand for bandwidth from our existing business customers.

Data-internet services accounted for 58.4% of our
revenue in 2001.

Revenue from voice services grew from pro forma
$35.7 million during the year ended December 31, 2000,
to $62.8 million for the same period in 2001, representing
an increase of $27.1 million or 75.8%. The increase in our
voice-related revenue was mainly due to the increase in our
customer base as well as an increase in minutes of traffic
processed, when compared to pro forma 2000.

Cost of Revenue.Cost of revenue was
$120.1 million for the year ended December 31, 2001,
compared to pro forma cost of revenue of $73.5 million for
the same period in 2000, representing an increase of
$46.6 million or 63.5%. The cost of revenue increase was
mainly attributable to the overall business growth in 2001 when
compared to pro forma 2000. Cost of revenue consists of leased
line costs, maintenance costs, and network and operating system
costs, including labor and other direct costs.

Selling, General and Administrative Expenses.Selling, general and administrative
expenses were $135.7 million for the year ended
December 31, 2001, compared to pro forma selling, general
and administrative expenses of $107.9 million for the same
period in 2000, representing an increase of $27.7 million or
25.7%. The increase in selling, general and administrative
expenses resulted primarily from higher headcount during most of
the year (headcount was reduced during the third and fourth
quarters of 2001), increased professional fees and general
business growth. Selling, general and administrative expenses are

43



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##### 



comprised primarily of compensation, professional
fees, travel expenses, marketing, office space and indirect
labor expenses.


EBITDA.We calculate
EBITDA as loss from operations plus depreciation and
amortization expense plus impairment loss on goodwill plus
allowance for stockholder loan. EBITDA for the year ended
December 31, 2001, was $(104.9) million or (69.5%) of
revenue, compared to pro forma EBITDA of $(92.2) million or
(103.3%) of pro forma revenue for the same period in 2000. Our
operations in Peru had $0.7 million positive EBITDA for the
year ended 2001. All other countries EBITDA was negative.
During 2001 EBITDA was negatively affected by restructuring
charges of $2.3 million associated with our head-count
reduction, additional bad debt expense of $2.9 million,
compensation expense related to tax gross-up of restricted stock
grants and employee relocation expenses of $2.6 million,
and $1.3 million of cash and non-cash charges related to
legal settlements. The improvement in EBITDA as a percentage of
revenue reflects the increased utilization of our network as the
number of customers and buildings connected increased, and a
higher number of services were provided to existing customers.

Depreciation and Amortization.Depreciation and amortization was
$104.1 million for the year ended December 31, 2001,
compared to pro forma depreciation and amortization of
$75.1 million for the same period in 2000, representing an
increase of $28.9 million or 38.5%. The increase in
depreciation and amortization was due mainly to the increase in
capital expenditures for the build out of our networks over the
year. Depreciation and amortization includes depreciation of our
installed networks and the amortization of goodwill and other
intangible assets related to the FirstCom merger and the
acquisitions of Netstream and Keytech.

Interest Expense.Interest expense, net of
$1.1 million of interest income, was $81.2 million for
the year ended December 31, 2001, compared to pro forma
interest expense of $33.4 million during the same period in
2000, representing an increase of $47.8 million or 143.1%.
This increase in interest expense was due mainly to the increase
in fixed interest bearing debt over the period. Interest expense
is mainly comprised of dividends relating to our Mandatorily
Redeemable 15% Series B Preferred Stock and interest
expense related to our credit facilities and demand notes
provided by AT&T Corp., as well as notes payable for
equipment and other bank loans.

Other (Expense) Income, Net.Other (expense) income, net was
$20.5 million for the year ended December 31, 2001.
Other (expense) income, net is mainly comprised of
foreign-currency transaction expense of approximately $28.9
million partially offset by changes in fair value of hedge
contracts of $11.6 million (realized gains of $9.6 million
and unrealized gains of $2.0 million).

Net Loss.Net loss
was $309.9 million for the year ended December 31,
2001, compared to pro forma net loss of $206.2 million for
the same period in 2000, representing an increase of
$103.7 million, or 50.3%.

Liquidity and Capital Resources



| |                  
| | -----------------
| | Current Situation

As of the date of this annual report, we do not
have sufficient cash to meet our requirements in the near term
unless we continue to defer and restructure amounts owed to our
secured and unsecured creditors, and successfully implement
austerity measures now being undertaken, or obtain additional
financing. Our restructuring efforts (including an extension of
certain payables) and the suspension of certain debt service and
principal payment obligations pending the resolution of
negotiations with creditors have allowed us to preserve adequate
cash to sustain operations and substantially reduced our net use
of cash in the near term.

Our cash needs arise from operating losses and
other working capital requirements, capital expenditures, debt
service and loan commitment fees. We are continuing to conserve
cash on hand by not servicing material indebtedness and by
continuing to reduce operating expenses and capital
expenditures. While in effect, these austerity measures will
substantially impede our growth.

As of December 31, 2002, we had foreign
currency forward contracts that hedge certain transactions with
notional amounts of $147.8 million, maturing in various
dates through November 2003. The total $20.8 million fair
value of forward currency contract assets, which are included as
prepaid expenses and other current

44



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##### 



assets on our December 31, 2002 balance
sheet, represents unrealized gains on our forward currency
contracts selling or buying foreign currencies as result of the
strengthening or weakening of the dollar compared to the
currencies that we hedge. We have certain hedge transactions in
Brazil and the United States, certain counterparties of which
are also creditors of ours in Brazil. To the extent we do not
succeed in restructuring the loans obtained from such creditors,
or loans from other creditors that may seek to pursue remedies
against us, we may not gain access to some of the hedge
settlement proceeds payable in Brazil as they come due. Failure
to collect on hedge proceeds would materially impair our
liquidity outlook.


Since November 2002, we have not made debt
service payments on most of our material indebtedness. We are
actively engaged in discussions with our various creditor
constituencies and other interested parties and their advisors.
Our goal is to reach an agreement with these parties to
recapitalize the Companys balance sheet to reduce
significantly our debt. Currently there are no definitive
agreements relating to any balance sheet recapitalization, and
there can be no assurance that current negotiations with the
various creditors will lead to agreement on terms acceptable to
our creditors as a group, or that, failing such an agreement,
any alternative transaction or court-supervised reorganization
will lead to a viable recapitalization plan.

If we are unable to address our liquidity needs,
or our creditors decide to accelerate amounts due to them, we
will likely need to seek protection from creditors under U.S.
bankruptcy laws and, depending on remedies that might be pursued
by our creditors, under the laws of some or all of the countries
in which we operate.

We believe that any solution to our current
liquidity situation will require us to reach an agreement to
restructure our liabilities and capital structure with our
secured vendor creditors, our other financial lenders and trade
creditors and AT&T Corp., as both an unsecured creditor and
holder of our Mandatorily Redeemable Series B 15%
Cumulative Preferred Stock. Absent a comprehensive restructuring
of our current capital structure, we do not believe it will be
possible to attract additional financing to fill our funding
needs. Moreover, even assuming a successful agreement with our
creditors to effect a comprehensive restructuring is completed,
we cannot be assured that new financing will be available on
acceptable terms, or at all, given current duress in the
communications industry in general and the difficult economic
conditions in the countries in which we operate, particularly in
Argentina and Brazil.

Our restructuring efforts, and the suspension of
certain debt service and principal payment obligations pending
the resolution of negotiations with creditors, have allowed us
to preserve adequate cash to sustain operations and
substantially reduced our net use of cash in the near term.

On a consolidated basis, as of December 31,
2002 we had cash and cash equivalents of $33.5 million. We
presently do not have available unused commitments under any
credit facilities. We actively manage liquidity not only in
terms of preserving cash but also with a view toward projected
cash needs in each of our country operations. Our ability to
maintain adequate liquidity for our business as a whole may
depend on our ability to move cash between our country
operations from time to time. However, due to exchange control
regulations and local fiduciary considerations, we may not be
able to transfer cash freely within our corporate group, and
restrictions on such transfers could have an adverse effect on
the liquidity of one or more of our country operations.

Implementation of our restructuring program will
require cash outlays during 2003, including for the
renegotiation of financing facilities and other contractual
commitments and for the engagement of professional advisors. The
amount of professional expenses, which we estimate between
$8.0 million and $15.0 million, will be payable in
part upon completion of a successful restructuring or sale and
will be affected by factors such as the length of time required
to complete the restructuring and the amount of consideration
that may be received in any sale or investment transaction. We
believe it will be critical to the business to retain
effectively a number of key employees and officers during the
restructuring process, and accordingly we are implementing

45



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##### 



a retention program under which retention
payments will also be payable following completion of key
milestones in the restructuring process. We estimate the
aggregate amounts payable under the retention program will range
from $1.5 million to $2.5 million during 2003.


The consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The
appropriateness of using the going concern basis in the future,
however, will be dependent upon our ability to address our
liquidity needs as described above. There is no assurance that
we will be able to address our liquidity needs through the
measures described above on acceptable terms and conditions, or
at all, and, accordingly, there is substantial doubt about our
ability to continue as a going concern.

Future Commitments and Funding
Sources

At December 31, 2002, our contractual cash
obligations were as set forth below. We have reflected the
entire outstanding balance of our senior secured vendor
financing facility current because we are currently in default
under our minimum revenue covenant in that facility. In
addition, we do not expect to be able to comply with other
covenants under our senior secured vendor financing facilities
going forward in 2003, including the minimum revenue covenant
and covenants relating to minimum EBITDA and liquidity targets,
absent restructuring of the facility terms. In addition, our
local bank facilities contain various events of default that, if
triggered, could result in the acceleration of other outstanding
balances under those facilities. See Capital
Resources  Senior Secured Vendor Financing and
 Other Bank Facilities below for more
information.

CONTRACTUAL CASH OBLIGATIONS

(In thousands)


|                                                  |                                        |       |         |                             |  |      |         |         |  |      |        |        |  |            |       |       |  |   |       |       |  |   |       |       |  |   |         |         | 
|------------------------------------------------- | -------------------------------------- | ----- | ------- | --------------------------- |  | ---- | ------- | ------- |  | ---- | ------ | ------ |  | ---------- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ------- | ------- | 
|                                                  |                                        |       |         |                            
|                                                  |                                        |       |         | Payments Due in Year Ending
|                                                  |                                        |       |         |                            
|                                                  |                                        | Total |         | 2003                        |  | 2004 |         | 2005    |  | 2006 |        | 2007   |  | Thereafter
|                                                  |                                        |       |         |                             |  |      |         |         |  |      |        |        |  |           
|Long-term debt, including current maturities (a)  |                                        | $     | 892,789 |                             |  | $    | 221,095 |         |  | $    | 18,560 |        |  | $          | 1,400 |       |  | $ | 1,031 |       |  | $ | 809   |       |  | $ | 649,894 |        
|Operating leases                                  |                                        |       | 20,055  |                             |  |      | 4,924   |         |  |      | 3,783  |        |  |            | 3,195 |       |  |   | 2,501 |       |  |   | 2,464 |       |  |   | 3,188   |        
|Capacity agreements (IRUs)                       |                                        |       | 16,736  |                             |  |      | 1,215   |         |  |      | 1,177  |        |  |            | 1,212 |       |  |   | 1,249 |       |  |   | 1,286 |       |  |   | 10,597  |        
|Purchase commitments for capital expenditures (b) |                                        |       | 157     |                             |  |      | 157     |         |  |      |       |        |  |            |      |       |  |   |      |       |  |   |      |       |  |   |        |        
|                                                  |                                        |       |         |                             |  |      |         |         |  |      |        |        |  |            |       |       |  |   |       |       |  |   |       |       |  |   |         |        
|                                                  | Total Contractual Cash obligations (c) |       | $       | 929,737                     |  |      | $       | 227,391 |  |      | $      | 23,520 |  |            | $     | 5,807 |  |   | $     | 4,781 |  |   | $     | 4,559 |  |   | $       | 663,679 | 
|                                                  |                                        |       |         |                             |  |      |         |         |  |      |        |        |  |            |       |       |  |   |       |       |  |   |       |       |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | See Note 3 to the consolidated financial
    statements for additional information regarding our debt.                                                                                                                                                                                                                                                                                                                                                                
|   
|(b) | Reflects only contractual commitments at
    December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(c) | Reflects only commitments for the specific
    categories listed and does not reflect such items as trade
    payable obligations, payroll-related liabilities or
    contributions to employee-related benefit, savings or deferred
    compensation plans, employment-related contracts (including
    separation agreements), obligations in the case of redemption of
    our 15% Series B Cumulative Preferred Stock in 2008 or
    short-term lease obligations.

We have not paid approximately $6.6 million
under contracts with AT&T Corp., including approximately
$0.8 million under our service mark license agreements. In
addition, we have not paid a retention payment of
$0.5 million due February 28, 2003 under an employment
contract with our chief executive officer and have received
notice of such non-payment (which non-payment may be cured
within 30 days for such notice). We are in discussions with
AT&T Corp. and our chief executive officer regarding a
restructuring of our obligations under these contracts. If we
are not able to reach agreement, these contracts could be
terminated, and the counterparties could pursue remedies against
us.

46



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##### 



Capital Uses

During the year ended December 31, 2002, our
net cash increased by $5.3 million (net of translation effect of
$(2.4) million). The increase in cash reflected cash provided by
financing activities of $132.3 million, offset by cash used
in operating activities of $86.1 million and
$38.5 million in investing activities mainly for the
improvement and expansion of our networks. Our uses of cash from
operating activities was comprised of net change in our
operating assets and liabilities of $(16.1) million and a net
change of $(70.0) million resulting from a net loss of
$1,102.5 million net of $1,032.5 million of non-cash
activities. Among non-cash activities we had the impairment loss
on goodwill of $716.3 million, depreciation and
amortization of $113.8 million, preferred stock and
interest on debt accretion of $103.4 million, unrealized
foreign exchange losses of $80.3 million and allowance for
stockholder loan of $10.4 million.

Capital Resources

On a consolidated basis, as of December 31,
2002 we had cash and cash equivalents of $33.4 million. We
presently do not have available unused commitments under any
credit facilities. We actively manage liquidity not only in
terms of preserving cash but also with a view toward projected
cash needs in each of our country operations. Our ability to
maintain adequate liquidity for our business as a whole,
however, may depend on our ability to move cash between our
country operations from time to time. Due to exchange control
regulations and local fiduciary considerations, we may not be
able to transfer cash freely within our corporate group, and
restrictions on such transfers could have an adverse effect on
the liquidity of one or more of our country operations.

Seasonality

To date we have not experienced significant
seasonality in our services offerings; however, some reduced
demand for our voice services was noted in the first quarter of
2002 in the countries in which we operate.

Impact of Inflation and Currency
Fluctuations

Inflation in the countries in which we operate
may affect our business through increased labor costs and
increases in the cost of third-party communications capacity and
other third-party services. To date we have not experienced
significant increases in these costs due to inflation. In
addition to the effect of inflation, competition for qualified
personnel could increase labor costs for us in the future. Our
international operations may, at times in the future, expose our
business to high inflation in certain foreign countries.

We generate all of our revenue from international
operations that are susceptible to currency fluctuations. The
likelihood and extent of future currency fluctuations in the
countries in which we operate in Latin America, future
deteriorating economic conditions in those Latin American
countries and the resulting impact on our results of operations,
financial position and cash flows cannot now be determined.

Our customer contracts as well as certain direct
costs in Argentina and Brazil provide for payment in local
currency as provided under law and are generally indexed to
various inflation indicators specific to their respective country

Effects of New Accounting Standards

Effective January 1, 2002, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 stops the amortization of our goodwill, which
is allocated through our country operations, and requires an
annual, or when events or circumstances dictate a more frequent,
impairment review of our goodwill. Accordingly, as of
January 1, 2002, we no longer amortize our goodwill. We
have recorded a transitional impairment loss of
$267.8 million as of January 1, 2002, which has been
recorded as a cumulative effect of change in accounting
principle in our country operations as follows:
Argentina  $33.2 million, Brazil 
$67.4 million, Chile  $19.3 million,
Colombia  $28.4 million and Peru 
$119.5 million. Subsequent to the implementation and in
connection with our review of our business plan, cash flow and
liquidity position, market capitalization based on the trading
price of our shares of Class A common stock as of the
valuation

47



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##### 



date and economic conditions in the countries in
which we operate, we assessed the value of our goodwill and
determined additional impairment loss in goodwill in our country
operations as follows: Brazil  $88.5 million,
Chile  $195.0 million, Colombia 
$50.0 million and Peru  $115.0 million. The
aggregate amount of impairment of $448.5 million has been
recorded as impairment loss on goodwill in the accompanying
consolidated financial statements for the year ended
December 31, 2002. The fair value of our goodwill was
determined using discounted cash flows on the current projected
operations of our country operations and market capitalization
of our business.


Since December 31, 2001, our goodwill
carrying amount has changed as a result of an impairment of
$716.3 million (including the cumulative effect of change
in accounting principle) and the change which resulted from
using a different foreign currency translation rate at
December 31, 2002 compared to December 31, 2001. If
goodwill amortization had not been recorded in 2001, our 2001
adjusted net loss and basic and diluted adjusted loss per share
would have been $266.3 million and $2.29 per share,
respectively, instead of $309.9 million and $2.66 per share,
respectively.

Effective January 1, 2002 we also adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supercedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. SFAS
No. 144 applies to all long-lived assets, including
discontinued operations and consequently amends APB Opinion
No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Based on SFAS No. 121, SFAS
No. 144 develops one accounting model for long-lived assets
that are to be disposed of by sale, as well as addresses the
principal implementation issues. SFAS No. 144 requires that
long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less cost to sell.
Additionally, SFAS No. 144 expands the scope of
discontinued operations to include all components of an entity
with operations that (1) can be distinguished from the rest
of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction. The adoption
of SFAS No. 144 did not have any effect on our accounting
for long-lived assets on the adoption date.

In April 2002, the Financial Accounting Standards
Board issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13,
and Technical Corrections, which provides for the
rescission of several previously issued accounting standards,
new accounting guidance for the accounting of certain lease
modifications and various technical corrections that are not
substantive in nature to existing pronouncements. We will adopt
SFAS No. 145 on January 1, 2003.

In June 2002, the Financial Accounting Standards
Board issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 addresses the
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
This Statement is effective for transactions initiated after
December 31, 2002 and is to be applied prospectively.

In November 2002, the Financial Accounting
Standards Board issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). This interpretation addresses the disclosures
to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees and clarifies
when a liability for the obligation undertaken should be
recognized. The initial measurement of the liability is the fair
value of the guarantee at its inception. This interpretation
does not prescribe a specific account for the guarantors
offsetting entry when it recognizes the liability at the
inception of a guarantee nor does it specify the subsequent
measurement of the guarantors recognized liability. The initial
recognition and measurement provisions shall be applied on a
prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements are included
in Note 4. FIN 45 is not expected to have a material effect on
the Companys consolidated results of operation or
financial position.

In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure,
an Amendment of SFAS No. 123, which provides

48



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##### 



alternate methods of transition for voluntary
changes to the fair value based method of accounting for
stock-based employee compensation. It also amends the disclosure
provisions of SFAS No. 123 and amends APB Opinion 28, Interim
Financial Reporting, to require disclosure about stock-based
employee compensation in the interim financial information. As
of December 31, 2002, we have adopted the new disclosure
provisions required under SFAS No. 148. We do not expect to
voluntarily change from our adopted disclosure-only provision of
SFAS No. 123 to the fair value based method of accounting;
therefore, we expect no material effect on the Companys
consolidated results of operation or financial position.




|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Our operations are exposed to market risks
principally from fluctuations in foreign currency exchange rates
and interest rates. We seek to minimize these risks through our
regular operating and financing activities and when appropriate,
through the use of derivative financial instruments. Our risk
management policy is a transaction oriented policy and is not
designed to use financial instruments for trading or other
speculative purposes.

Exposure to Foreign Currency Exchange Rates.Our primary foreign currency exchange
risk relates to our operations in Latin America where we conduct
business with more than one currency.

At December 31, 2002, we had foreign
currency forward contracts with notional amounts of
$147.8 million, maturing in various dates through November
2003. Based upon a 10% strengthening or weakening of the U.S.
dollar compared to the currencies that we currently hedge, the
estimated fair value of undesignated forward contracts would
have resulted in additional unrealized losses of
$1.0 million or unrealized losses of $2.3 million,
respectively, for the year ended December 31, 2002. We have
certain hedge transactions in Brazil and the United States, the
counterparties of which are also creditors of ours holding
certain commercial bank loans. To the extent we do not succeed
in restructuring certain of those loans, we may not gain access
to some of the hedge settlement proceeds as they come due.
Failure to collect on hedge proceeds would materially impair our
liquidity outlook.

We can offer no assurances that we will be able
to continue to enter into or maintain existing foreign currency
forward contracts to hedge our currency risks in the future
given our current financial situation.

Management considers its operations in foreign
subsidiaries and affiliates to be long-term in nature.
Accordingly, we do not hedge foreign currency exchange rate risk
related to long-term transactions.

Exposure to Interest Rates.Approximately 26.0% of our debt
portfolio bears interest at variable rates. Any changes in the
market interest rate will affect the amount of our interest
expense and the ultimate cash paid to those lenders. To date we
have not used interest rate swaps to fix the interest costs on
these loans. Assuming a hypothetical interest rate increase or
decrease of 100 basis points from interest rates as of
December 31, 2002, interest expense on our variable
interest rate portfolio would have increased $1.5 million
or decreased $1.5 million, respectively, for the year ended
December 31, 2002.

49



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##### 



ITEM
8.     Financial Statements and
Supplementary Data

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                  |  |      |    | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                  |  | Page
|                                                                                                                                  |  |     
|Report of Independent Accountants                                                                                                 |  |      | 51 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                                  |  |      | 52 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                                    |  |      | 53 | 
|Consolidated Statements of Changes in
    Stockholders (Deficit) Equity for the years ended
    December 31, 2002, 2001 and 2000 |  |      | 54 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                    |  |      | 55 | 
|Notes to Consolidated Financial Statements                                                                                        |  |      | 57 | 

The valuation and qualifying accounts schedule
has been omitted because the required information is shown in
the financial statements or notes thereto.

50



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##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

AT&T Latin America Corp.


In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, stockholders (deficit) equity and cash
flows present fairly, in all material respects, the financial
position of AT&T Latin America Corp. and its subsidiaries
(the Company) at December 31, 2002 and 2001,
and the results of their operations and their cash flows for the
three years ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered recurring losses from
operations, has net cash outflows and net capital deficiency,
and has defaulted on its financial and non-financial covenants
to the senior secured lenders. These circumstances raise
substantial doubt about its ability to continue as a going
concern. Managements plans in regard to these matters are
also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.

As described in Note 10 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142
Goodwill and other Intangible Assets, effective
January 1, 2002.

/s/ PricewaterhouseCoopers LLP

Washington D.C.

March 21, 2003


51



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##### 



AT&T LATIN AMERICA CORP.

(a majority owned subsidiary of AT&T
Corp.)


CONSOLIDATED BALANCE SHEETS

|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |          |           | 
|----------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ---------- | --------- | - | ------- | -------- | --------- | 
|                                                                                                                                    |                                                                                                                                           |                                                         
|                                                                                                                                    |                                                                                                                                           | December 31,                                            
|                                                                                                                                    |                                                                                                                                           |                                                         
|                                                                                                                                    |                                                                                                                                           | 2002                                                     |         | 2001      
|                                                                                                                                    |                                                                                                                                           |                                                          |         |           
|                                                                                                                                    |                                                                                                                                           |                                                         
|                                                                                                                                    |                                                                                                                                           | (In thousands)                                          
|ASSETS                                                                                                                             
|Current assets:                                                                                                                     |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    | Cash and cash equivalents                                                                                                                 |                                                          | $       | 33,481     |           |   | $       | 28,186   |          
|                                                                                                                                    | Accounts receivable, net of $7,318 and $8,250 of
    allowance for bad debts at December 31, 2002 and 2001,
    respectively              |                                                          |         | 34,980     |           |   |         | 41,973   |          
|                                                                                                                                    | Recoverable taxes                                                                                                                         |                                                          |         | 15,126     |           |   |         | 15,219   |          
|                                                                                                                                    | Prepaid expenses and other current assets                                                                                                 |                                                          |         | 31,222     |           |   |         | 26,816   |          
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total current assets                                     |         |            | 114,809   |   |         |          | 112,194   | 
|Property and equipment, net                                                                                                         |                                                                                                                                           |                                                          | 365,422 |            |           |   | 493,568 |         
|Goodwill, net of accumulated amortization of
    $66,383 at December 31, 2001                                                       |                                                                                                                                           |                                                          |        |            |           |   | 759,067 |         
|Other intangible assets, net of accumulated
    amortization of $20,029 and $10,598 at December 31, 2002
    and 2001, respectively |                                                                                                                                           |                                                          | 14,445  |            |           |   | 24,130  |         
|Recoverable taxes                                                                                                                   |                                                                                                                                           |                                                          | 16,812  |            |           |   | 24,841  |         
|Other assets                                                                                                                        |                                                                                                                                           |                                                          | 22,967  |            |           |   | 31,511  |         
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total assets                                             |         | $          | 534,455   |   |         | $        | 1,445,311 | 
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|LIABILITIES AND STOCKHOLDERS
    (DEFICIT) EQUITY                                                                                 
|Current liabilities:                                                                                                                |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    | Current maturities of debt                                                                                                                |                                                          | $       | 228,491    |           |   | $       | 87,051   |          
|                                                                                                                                    | Accounts payable and accrued expenses (including
    $6,578 and $4,434 due to AT&T Corp. at December 31,
    2002 and 2001, respectively) |                                                          |         | 71,264     |           |   |         | 80,595   |          
|                                                                                                                                    | Other current liabilities                                                                                                                 |                                                          |         | 24,546     |           |   |         | 51,956   |          
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total current liabilities                                |         |            | 324,301   |   |         |          | 219,602   | 
|Long-term debt (including $647,233 and $475,757
    due to AT&T Corp. at December 31, 2002 and 2001,
    respectively)              |                                                                                                                                           |                                                          | 664,298 |            |           |   | 575,091 |         
|Deferred interest (including $7,768 and $30,172
    due to AT&T Corp. at December 31, 2002 and 2001,
    respectively)              |                                                                                                                                           |                                                          | 7,768   |            |           |   | 31,010  |         
|Other liabilities                                                                                                                   |                                                                                                                                           |                                                          | 2,881   |            |           |   | 6,289   |         
|Mandatorily Redeemable 15% Series B
    Preferred Stock (held by a wholly-owned subsidiary of AT&T
    Corp.)                       |                                                                                                                                           |                                                          | 248,734 |            |           |   | 215,232 |         
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total liabilities                                        |         |            | 1,247,982 |   |         |          | 1,047,224 | 
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|Commitments and contingencies (Note 9)                                                                                              |                                                                                                                                           |                                                          |        |            |           |   |        |         
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|Stockholders (deficit) equity:                                                                                                     |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    | Common stock (including 68.3% economic interest
    owned by AT&T Corp., representing 95.2% voting power)                                 |                                                          |         | 11         |           |   |         | 11       |          
|                                                                                                                                    | Additional paid in capital                                                                                                                |                                                          |         | 924,906    |           |   |         | 918,337  |          
|                                                                                                                                    | Unearned restricted stock                                                                                                                 |                                                          |         | (2,423     | )         |   |         | (2,627   | )        
|                                                                                                                                    | Accumulated deficit                                                                                                                       |                                                          |         | (1,548,939 | )         |   |         | (446,429 | )        
|                                                                                                                                    | Accumulated other comprehensive (loss) income                                                                                             |                                                          |         | (87,082    | )         |   |         | (61,323  | )        
|                                                                                                                                    | Stockholder loan                                                                                                                          |                                                          |         |           |           |   |         | (9,882   | )        
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total stockholders (deficit) equity                     |         |            | (713,527  | ) |         |          | 398,087   | 
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         
|                                                                                                                                    |                                                                                                                                           | Total liabilities and stockholders
    (deficit) equity |         | $          | 534,455   |   |         | $        | 1,445,311 | 
|                                                                                                                                    |                                                                                                                                           |                                                          |         |            |           |   |         |         

The accompanying footnotes are an integral part
of these consolidated financial statements.

52



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##### 



AT&T LATIN AMERICA CORP.

(a majority owned subsidiary of AT&T
Corp.)


CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |        |          |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ------- | ---------- | ------- | ------- | ------ | -------- | ------- | ------ | ------ | -------- | ------ | 
|                                                                                                                                                        |                        |                                                                                                                                                                           
|                                                                                                                                                        |                        | Year Ended December 31,                                                                                                                                                   
|                                                                                                                                                        |                        |                                                                                                                                                                           
|                                                                                                                                                        |                        | 2002                                                                                                                                                                       |               | 2001    |            | 2000   
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |        
|                                                                                                                                                        |                        |                                                                                                                                                                           
|                                                                                                                                                        |                        | (In thousands, except per share data)                                                                                                                                     
|Revenue:                                                                                                                                                |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|                                                                                                                                                        | Data-Internet services |                                                                                                                                                                            | $             | 103,354 |            |         | $       | 88,118 |          |         | $      | 41,368 |         
|                                                                                                                                                        | Voice services         |                                                                                                                                                                            |               | 62,239  |            |         |         | 62,792 |          |         |        | 10,867 |         
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|                                                                                                                                                        |                        |                                                                                                                                                                            | Total revenue |         |            | 165,593 |         |        |          | 150,910 |        |        |          | 52,235 | 
|Cost of revenue                                                                                                                                         |                        |                                                                                                                                                                            | 103,611       |         |            |         | 120,112 |        |          |         | 54,070 |       
|Selling, general and administrative expenses                                                                                                            |                        |                                                                                                                                                                            | 119,319       |         |            |         | 135,672 |        |          |         | 67,695 |       
|Depreciation and amortization                                                                                                                           |                        |                                                                                                                                                                            | 113,760       |         |            |         | 104,053 |        |          |         | 43,795 |       
|Impairment loss on goodwill                                                                                                                             |                        |                                                                                                                                                                            | 448,469       |         |            |         |        |        |          |         |       |       
|                                                                                                                                                        |                        | Loss from operations                                                                                                                                                       |               |         | (619,566   | )       |         |        | (208,927 | )       |        |        | (113,325 | )     
|Interest expense                                                                                                                                        |                        |                                                                                                                                                                            | 139,878       |         |            |         | 82,283  |        |          |         | 14,797 |       
|Interest income                                                                                                                                         |                        |                                                                                                                                                                            | 1,266         |         |            |         | 1,123   |        |          |         | 3,037  |       
|Other (expense) income, net                                                                                                                             |                        |                                                                                                                                                                            | (70,152       | )       |            |         | (20,514 | )      |          |         | (7,744 | )     
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|                                                                                                                                                        |                        | Loss before provision for income taxes, minority
    interest income, extraordinary loss on debt restructuring and
    cumulative effect of change in accounting principle |               |         | (828,330   | )       |         |        | (310,601 | )       |        |        | (132,829 | )     
|Provision for income taxes                                                                                                                              |                        |                                                                                                                                                                            | 2,111         |         |            |         |        |        |          |         |       |       
|Minority interest income                                                                                                                                |                        |                                                                                                                                                                            | 195           |         |            |         | 628     |        |          |         | 497    |       
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|                                                                                                                                                        |                        | Loss before extraordinary loss on debt
    restructuring and cumulative effect of change in accounting
    principle                                                       |               |         | (830,246   | )       |         |        | (309,973 | )       |        |        | (132,332 | )     
|Extraordinary loss on debt restructuring                                                                                                                |                        |                                                                                                                                                                            | (4,479        | )       |            |         |        |        |          |         |       |       
|Cumulative effect of change in accounting
    principle                                                                                                 |                        |                                                                                                                                                                            | (267,785      | )       |            |         |        |        |          |         |       |       
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|                                                                                                                                                        |                        | Net loss                                                                                                                                                                   |               | $       | (1,102,510 | )       |         | $      | (309,973 | )       |        | $      | (132,332 | )     
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|Basic and diluted loss per common share before
    extraordinary loss on debt restructuring and cumulative effect
    of change in accounting principle |                        | $                                                                                                                                                                          | (7.00         | )       |            | $       | (2.66   | )      |          | $       | (1.43  | )     
|Extraordinary loss per common share on debt
    restructuring                                                                                           |                        |                                                                                                                                                                            | (0.04         | )       |            |         |        |        |          |         |       |       
|Cumulative effect of change in accounting
    principle loss per common share                                                                           |                        |                                                                                                                                                                            | (2.26         | )       |            |         |        |        |          |         |       |       
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|Basic and diluted loss per common share                                                                                                                 |                        | $                                                                                                                                                                          | (9.30         | )       |            | $       | (2.66   | )      |          | $       | (1.43  | )     
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       
|Weighted average common shares outstanding                                                                                                              |                        |                                                                                                                                                                            | 118,623       |         |            |         | 116,484 |        |          |         | 92,757 |       
|                                                                                                                                                        |                        |                                                                                                                                                                            |               |         |            |         |         |        |          |         |        |       

The accompanying footnotes are an integral part
of these consolidated financial statements.

53



---



##### 



AT&T LATIN AMERICA CORP.

(a majority owned subsidiary of AT&T
Corp.)


CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS (DEFICIT) EQUITY

|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |        |  |   |            |   |  |   |         |   |  |   |        |   |  |   |            |  
|----------------------------------------------- |  | ------------ | ------- | ---------- |  | ---------- | -- | ----------- |  | ------------- | ------- | ----------- |  | ------------- | ------ | ------ |  | - | ---------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ---------- | -
|                                                |  |              |         |            |  |            |    |             |  | Other         |         |             |  | Total        
|                                                |  | Common Stock |         | Additional |  | Unearned   |    |             |  | Comprehensive |         |             |  | Stockholders
|                                                |  |              |         | Paid In    |  | Restricted |    | Accumulated |  | Income        |         | Stockholder |  | (Deficit)    
|                                                |  | Stock        |         | Amount     |  | Capital    |    | Stock       |  | Deficit       |         | (Loss)      |  | Loan          |        | Equity
|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |       
|Balance January 1, 2000                         |  |              | 40      |            |  | $          |   |             |  | $             | 376,566 |             |  | $             |        |        |  | $ | (4,124     | ) |  | $ | 1,352   |   |  | $ |       |   |  | $ | 373,794    |  
|2000:1 stock split                              |  |              | 79,960  |            |  |            | 8  |             |  |               | (8      | )           |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   |           |  
|Stock issued for acquisitions                   |  |              | 34,894  |            |  |            | 3  |             |  |               | 518,027 |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 518,030    |  
|Stockholder loan                                |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   | (711   | ) |  |   | (711       | )
|Stock issued for cash                           |  |              | 1,202   |            |  |            |   |             |  |               | 20,000  |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 20,000     |  
|Stock issued for stock options exercised        |  |              | 200     |            |  |            |   |             |  |               | 450     |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 450        |  
|Net loss                                        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   | (132,332   | ) |  |   |        |   |  |   |       |   |  |   | (132,332   | )
|Foreign currency translation adjustments        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   | (544    | ) |  |   |       |   |  |   | (544       | )
|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |        |  |   |            |   |  |   |         |   |  |   |        |   |  |   |            |  
|Balance December 31, 2000.                      |  |              | 116,296 |            |  |            | 11 |             |  |               | 915,035 |             |  |               |       |        |  |   | (136,456   | ) |  |   | 808     |   |  |   | (711   | ) |  |   | 778,687    |  
|Stockholder loan                                |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   | (9,171 | ) |  |   | (9,171     | )
|Issuance of stock options to non-employees      |  |              |        |            |  |            |   |             |  |               | 630     |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 630        |  
|Stock issued to employees                       |  |              | 2,009   |            |  |            |   |             |  |               | 2,672   |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 2,672      |  
|Unearned portion of stock issued to employees   |  |              |        |            |  |            |   |             |  |               |        |             |  |               | (2,627 | )      |  |   |           |   |  |   |        |   |  |   |       |   |  |   | (2,627     | )
|Net loss                                        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   | (309,973   | ) |  |   |        |   |  |   |       |   |  |   | (309,973   | )
|Foreign currency translation adjustments        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   | (52,092 | ) |  |   |       |   |  |   | (52,092    | )
|Net unrealized losses on derivative instruments |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   | (10,039 | ) |  |   |       |   |  |   | (10,039    | )
|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |        |  |   |            |   |  |   |         |   |  |   |        |   |  |   |            |  
|Balance December 31, 2001.                      |  |              | 118,305 |            |  |            | 11 |             |  |               | 918,337 |             |  |               | (2,627 | )      |  |   | (446,429   | ) |  |   | (61,323 | ) |  |   | (9,882 | ) |  |   | 398,087    |  
|Interest accretion on stockholder loan          |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   | (509   | ) |  |   | (509       | )
|Stock issued to employees, net of cancellations |  |              | 405     |            |  |            |   |             |  |               | 305     |             |  |               | (305   | )      |  |   |           |   |  |   |        |   |  |   |       |   |  |   |           |  
|Accretion of unearned restricted stock          |  |              |        |            |  |            |   |             |  |               |        |             |  |               | 509    |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 509        |  
|Warrants issued to parent company               |  |              |        |            |  |            |   |             |  |               | 6,264   |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   |       |   |  |   | 6,264      |  
|Net loss                                        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   | (1,102,510 | ) |  |   |        |   |  |   |       |   |  |   | (1,102,510 | )
|Foreign currency translation adjustments        |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   | (25,759 | ) |  |   |       |   |  |   | (25,759    | )
|Allowance for stockholder loan                  |  |              |        |            |  |            |   |             |  |               |        |             |  |               |       |        |  |   |           |   |  |   |        |   |  |   | 10,391 |   |  |   | 10,391     |  
|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |        |  |   |            |   |  |   |         |   |  |   |        |   |  |   |            |  
|Balance December 31, 2002.                      |  |              | 118,710 |            |  | $          | 11 |             |  | $             | 924,906 |             |  | $             | (2,423 | )      |  | $ | (1,548,939 | ) |  | $ | (87,082 | ) |  | $ |       |   |  | $ | (713,527   | )
|                                                |  |              |         |            |  |            |    |             |  |               |         |             |  |               |        |        |  |   |            |   |  |   |         |   |  |   |        |   |  |   |            |  

The accompanying footnotes are an integral part
of these consolidated financial statements.

54



---



##### 



AT&T LATIN AMERICA CORP.

(a majority owned subsidiary of AT&T
Corp.)


CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |          |        |         |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------- | ---------- | ------- | ------- | -------- | -------- | ------- | ------- | -------- | -------- | ------ | ------- | -
|                                                         |                                                                                                                   |                                                                     
|                                                         |                                                                                                                   | For the Year Ended December 31,                                     
|                                                         |                                                                                                                   |                                                                     
|                                                         |                                                                                                                   | 2002                                                                 |                                       | 2001       |         | 2000   
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |        
|                                                         |                                                                                                                   |                                                                     
|                                                         |                                                                                                                   | (In thousands)                                                      
|Cash flows from operating activities:                    |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|                                                         | Net loss                                                                                                          |                                                                      | $                                     | (1,102,510 | )       |         | $        | (309,973 | )       |         | $        | (132,332 | )     
|                                                         | Adjustment to reconcile net loss to net cash used
    in operating activities:                                    |                                                                      |                                       |            |         |         |          |          |         |         |          |          |       
|                                                         |                                                                                                                   | Depreciation and amortization                                        |                                       |            | 113,760 |         |          |          | 104,053 |         |          |          | 43,795 |        
|                                                         |                                                                                                                   | Cumulative effect of change in accounting
    principle              |                                       |            | 267,785 |         |          |          |        |         |          |          |       |        
|                                                         |                                                                                                                   | Impairment loss on goodwill                                          |                                       |            | 448,469 |         |          |          |        |         |          |          |       |        
|                                                         |                                                                                                                   | Allowance for stockholder loan                                       |                                       |            | 10,391  |         |          |          |        |         |          |          |       |        
|                                                         |                                                                                                                   | Bad debt expense                                                     |                                       |            | 4,134   |         |          |          | 7,457   |         |          |          | 793    |        
|                                                         |                                                                                                                   | Unrealized foreign exchange loss (gain)                              |                                       |            | 80,307  |         |          |          | 17,041  |         |          |          | (544   | )      
|                                                         |                                                                                                                   | Minority interest income                                             |                                       |            | (195    | )       |          |          | (628    | )       |          |          | (497   | )      
|                                                         |                                                                                                                   | Preferred stock accretion                                            |                                       |            | 33,502  |         |          |          | 29,027  |         |          |          | 9,098  |        
|                                                         |                                                                                                                   | Stockholder loan accretion                                           |                                       |            | (509    | )       |          |          | (474    | )       |          |          |       |        
|                                                         |                                                                                                                   | Issuance of stock options to non-employees                           |                                       |            |        |         |          |          | 630     |         |          |          |       |        
|                                                         |                                                                                                                   | Unearned restricted stock accretion                                  |                                       |            | 509     |         |          |          | 45      |         |          |          |       |        
|                                                         |                                                                                                                   | Loss on debt restructuring                                           |                                       |            | 4,479   |         |          |          |        |         |          |          |       |        
|                                                         |                                                                                                                   | Accrued interest characterized as debt                               |                                       |            | 69,889  |         |          |          |        |         |          |          |       |        
|                                                         |                                                                                                                   | Changes in assets and liabilities net of effect
    of acquisitions: |                                       |            |         |         |          |          |         |         |          |          |        |        
|                                                         |                                                                                                                   |                                                                      | Accounts receivable                   |            |         | 2,859   |          |          |         | (33,496 | )        |          |        | 317     |  
|                                                         |                                                                                                                   |                                                                      | Recoverable taxes                     |            |         | 8,122   |          |          |         | (12,753 | )        |          |        | (14,622 | )
|                                                         |                                                                                                                   |                                                                      | Prepaid and other current assets      |            |         | (4,406  | )        |          |         | (3,973  | )        |          |        | (17,868 | )
|                                                         |                                                                                                                   |                                                                      | Other assets                          |            |         | 10,236  |          |          |         | (17,130 | )        |          |        | (12,842 | )
|                                                         |                                                                                                                   |                                                                      | Accounts payable and accrued expenses |            |         | (9,262  | )        |          |         | (25,561 | )        |          |        | 77,374  |  
|                                                         |                                                                                                                   |                                                                      | Other current liabilities             |            |         | (27,410 | )        |          |         | 41,282  |          |          |        | (696    | )
|                                                         |                                                                                                                   |                                                                      | Deferred interest                     |            |         | 6,929   |          |          |         | 31,010  |          |          |        |        |  
|                                                         |                                                                                                                   |                                                                      | Other liabilities                     |            |         | (3,213  | )        |          |         | 241     |          |          |        | (1,959  | )
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Net cash used in operating activities                    |                                                                                                                   |                                                                      | (86,134                               | )          |         |         | (173,202 | )        |         |         | (49,983  | )       
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Cash flows from investing activities:                    |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|                                                         | Purchase of property and equipment                                                                                |                                                                      |                                       | (38,385    | )       |         |          | (141,686 | )       |         |          | (162,709 | )     
|                                                         | Redemption of (investment in) short-term
    securities                                                           |                                                                      |                                       |           |         |         |          |         |         |         |          | 27,078   |       
|                                                         | Cash acquired from acquisitions                                                                                   |                                                                      |                                       |           |         |         |          |         |         |         |          | 22,557   |       
|                                                         | Cash paid for acquisitions of licenses and other
    core assets, including contingent consideration and expenses |                                                                      |                                       | (116       | )       |         |          | (6,602   | )       |         |          | (15,002  | )     
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Net cash used in investing activities                    |                                                                                                                   |                                                                      | (38,501                               | )          |         |         | (148,288 | )        |         |         | (128,076 | )       
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Cash flows from financing:                               |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|                                                         | (Repayments) proceeds of other bank facilities,
    net                                                           |                                                                      |                                       | (15,497    | )       |         |          | 24,322   |         |         |          | 18,600   |       
|                                                         | Proceeds from parent company credit facilities                                                                    |                                                                      |                                       | 72,244     |         |         |          | 334,857  |         |         |          | 140,900  |       
|                                                         | Proceeds from secured vendor financing                                                                            |                                                                      |                                       | 166,755    |         |         |          |         |         |         |          |         |       
|                                                         | Payments of interim notes payable for equipment                                                                   |                                                                      |                                       | (73,803    | )       |         |          |          |         |         |          |          |       
|                                                         | Repayments of notes to other vendors                                                                              |                                                                      |                                       | (17,396    | )       |         |          | (14,872  | )       |         |          |         |       
|                                                         | Proceeds from issuance of common stock                                                                            |                                                                      |                                       |           |         |         |          |         |         |         |          | 20,000   |       
|                                                         | Proceeds from issuance of preferred stock to
    parent company                                                   |                                                                      |                                       |           |         |         |          |         |         |         |          | 177,107  |       
|                                                         | Proceeds from issuance of common stock under
    stock option plans                                               |                                                                      |                                       |           |         |         |          |         |         |         |          | 450      |       
|                                                         | Loans to stockholder                                                                                              |                                                                      |                                       |           |         |         |          | (8,782   | )       |         |          | (711     | )     
|                                                         | Redemption of senior notes                                                                                        |                                                                      |                                       |           |         |         |          |         |         |         |          | (187,605 | )     
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Net cash provided by financing activities                |                                                                                                                   |                                                                      | 132,303                               |            |         |         | 335,525  |          |         |         | 168,741  |         
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                                   |                                                                      | 7,668                                 |            |         |         | 14,035   |          |         |         | (9,318   | )       
|Net effect of translation on cash                        |                                                                                                                   |                                                                      | (2,373                                | )          |         |         | (754     | )        |         |         |         |         
|Cash and cash equivalents, beginning of period           |                                                                                                                   |                                                                      | 28,186                                |            |         |         | 14,905   |          |         |         | 24,223   |         
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         
|Cash and cash equivalents, end of period                 |                                                                                                                   | $                                                                    | 33,481                                |            |         | $       | 28,186   |          |         | $       | 14,905   |         
|                                                         |                                                                                                                   |                                                                      |                                       |            |         |         |          |          |         |         |          |         

The accompanying footnotes are an integral part
of these consolidated financial statements.

55



---



##### 



AT&T LATIN AMERICA CORP.

(a majority owned subsidiary of AT&T
Corp.)


CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

December 31, 2002, 2001 and
2000


Supplemental Disclosure of Non-cash Investing
and Financing Activities:

In connection with the restructuring of our
facilities with AT&T Corp., we have characterized deferred
interest as of January 1, 2002 of $30.2 million plus
the amount accrued from January 1, 2002 through
December 31, 2002 of $69.1 million as part of the debt.

During the year ended December 31, 2002, we
issued in non-cash transactions 505,000 restricted shares of
Class A common stock to employees in exchange for future
services. The fair value amount of $0.4 million was
accounted for as additional paid in capital with the
corresponding unvested portion as unearned restricted stock in
stockholders equity. During the same period 100,000
restricted shares of Class A common stock, with a fair
value of $0.1 million were cancelled.

During 2001 and 2000, we acquired property and
equipment through vendor financing arrangements for
approximately $107.9 million and $30.8 million,
respectively.

In November 2001 we issued in non-cash
transactions 2,000,000 shares of class A common stock to our
president and CEO in exchange for services. We also issued 9,259
shares of class A common stock to employees for previous
services. The issuance of stock was accounted for as additional
paid in capital with the corresponding unvested portion as
unearned restricted stock in the stockholders equity. The
vested portion is accounted for as compensation expense and has
been included in the non-cash adjustments to reconcile net loss
to net cash used in operating activities in the accompanying
statement of cash flows.

In August 2000, we completed our merger with
FirstCom Corporation, in June 2000, we acquired 100% of the
equity interests of Keytech LD S.A. and in December 1999 we
acquired 100% of the equity interests in Netstream Telecom Ltda.
in transactions accounted for as purchases. The aggregate fair
value of net liabilities assumed in 2000 amounted to
$0.3 million.

56



---



##### 



AT&T LATIN AMERICA CORP.

(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002, 2001 and
2000




|          |                                                                                                                                                       
|--------- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE  1  | General, Liquidity and Going Concern
    Considerations, Critical Accounting Policies and Judgments and
    Summary of Significant Accounting Policies

General

AT&T Latin America Corp. was incorporated on
October 13, 1999 by AT&T Corp., under the laws of the
State of Delaware, and along with its consolidated subsidiaries
is referred to collectively in these consolidated financial
statements and elsewhere in this annual report on Form 10-K
as we, our, the Company,
AT&T Latin America and us. We
provide communications services under the AT&T
brand name to major metropolitan business markets in Argentina,
Brazil, Chile, Colombia and Peru. We deliver our services mainly
through our own technologically advanced networks, which
interconnect with third party networks. Our communication
services include, among others, data-Internet, local and long
distance voice, web hosting and managed network services.

AT&T Corp. holds directly or indirectly
8,000,000 shares of our Class A common stock and all 73,081,595
outstanding shares of our Class B common stock,
representing approximately 95.2% of the voting power and
approximately 68.3% of the economic interests of our common
stock, and held approximately $903.7 million of our
long-term debt and preferred stock, including accrued interest
and preferred dividends as of December 31, 2002.

In January 2003, AT&T Corp. announced that it
had entered into a non-binding letter of intent to sell its
interest in us for a nominal price to a telecommunications
holding company. We also have received expressions of interest
from a number of other qualified strategic and financial
investors. We will continue to pursue all strategic options for
the Company that serve our objective of maximizing value for our
constituents.

If AT&T Corp. were no longer to hold a
majority of the equity interest in the Company, we expect that
certain brand, commercial and other contractual arrangements we
have with AT&T Corp. will likely be terminated or phased out
over time. These arrangements include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our regional vehicle agreement with AT&T
    Corp., which agreement establishes the territory in South
    America and the Caribbean in which we operate , the types of
    services we are permitted to provide or are restricted from
    providing, certain restrictions on AT&T Corp.s ability
    to compete with us in our designated region and certain rights
    we have to acquire similar businesses in our region from
    AT&T Corp., in the event it acquires such businesses;
|
| |  | our non-exclusive service mark license, which
    allows us to use the AT&T brand and logo in our operations
    and for our services, subject to certain qualifications as to
    service quality and requirements as to brand monitoring and
    management; and                                                                                                                                                                                                                           
|
| |  | our joint sales initiative, which along with
    related arrangements provides for the compensation of the
    AT&T Corp. sales force for sales of our services to AT&T
    Corp. customers and for joint account planning with respect to
    such customers.                                                                                                                                                                                                                               

We expect that a sale or other disposal by
AT&T Corp. of its investment in us, and the termination of
these commercial arrangements, will generally reduce the volume
of customer referrals through AT&T Corp., and, at least in
the short term, the number of direct relationships we have with
AT&T Corp.s global customers that we service in South
America and internationally using our infrastructure. In
addition, AT&T Corp. is deploying an enhanced global data
network, known as the AGN, including in several South American
cities, and we expect that some of these customers may choose to
transition to the AT&T Corp. global network for a
substantial portion of the international data services we
currently provide. We are currently discussing with AT&T
Corp. the terms of commercial transition arrangements and our
future commercial relationship. Given our advanced regional
network covering key South American business centers, our

57



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

integrated regional platform, our high-quality
services and our strong relationships with numerous customers
that are also customers of AT&T Corp., we are working to
maintain a collaborative and productive commercial relationship
with AT&T Corp. At the same time, we believe that a
disengagement by AT&T Corp. from its investment in us may
open potential opportunities for us to strengthen relationships
with other major international carriers and their customers,
which opportunities are not fully available to us under our
current business model and contractual restrictions with
AT&T Corp.

Liquidity and Going Concern
Considerations

As of the date of this annual report, we do not
have sufficient cash to meet our requirements in the near term
unless we continue to defer and restructure amounts owed to our
secured and unsecured creditors, and successfully implement
austerity measures now being undertaken, or obtain additional
financing. Our restructuring efforts (including an extension of
certain payables), and the suspension of certain debt service
and principal payment obligations pending the resolution of
negotiations with creditors have allowed us to preserve adequate
cash to sustain operations and substantially reduce our net use
of cash in the near term.

Our cash needs arise from operating losses and
other working capital requirements, capital expenditures, debt
service and loan commitment fees. We are continuing to conserve
cash on hand by not servicing material indebtedness and by
continuing to reduce operating expenses and capital
expenditures. While in effect, these austerity measures will
substantially impede our growth.

As of December 31, 2002, we had foreign
currency forward contracts that hedge certain transactions with
notional amounts of $147.8 million, maturing in various
dates through November 2003. The total $20.8 million fair
value of forward currency contract assets, which are included as
prepaid expenses and other current assets on our
December 31, 2002 balance sheet, represents unrealized
gains on our forward currency contracts selling or buying
foreign currencies as result of the strengthening or weakening
of the dollar compared to the currencies that we hedge. We have
certain hedge transactions in Brazil and the United States,
certain counterparties of which are also creditors of ours in
Brazil. To the extent we do not succeed in restructuring the
loans obtained from such creditors, or loans from other
creditors that may seek to pursue remedies against us, we may
not gain access to some of the hedge settlement proceeds payable
in Brazil as they come due. Failure to collect on hedge proceeds
would materially impair our liquidity outlook.

Since November 2002, we have not made debt
service payments on most of our material indebtedness. We are
actively engaged in discussions with our various creditor
constituencies and other interested parties and their advisors.
Our goal is to reach an agreement with these parties to
recapitalize the Companys balance sheet to reduce
significantly our debt. Currently there are no definitive
agreements relating to any balance sheet recapitalization, and
there can be no assurance that current negotiations with the
various creditors will lead to agreement on terms acceptable to
our creditors as a group, or that, failing such an agreement,
any alternative transaction or court-supervised reorganization
will lead to a viable recapitalization plan.

If we are unable to address our liquidity needs,
or our creditors decide to accelerate amounts due to them, we
will likely need to seek protection from creditors under U.S.
bankruptcy laws and, depending on remedies that might be pursued
by our creditors, under the laws of some or all of the countries
in which we operate.

We believe that any solution to our current
liquidity situation will require us to reach an agreement to
restructure our liabilities and capital structure with our
secured vendor creditors, our other financial lenders

58



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and trade creditors and AT&T Corp., as both
an unsecured creditor and holder of our Mandatorily Redeemable
Series B 15% Cumulative Preferred Stock. Absent a
comprehensive restructuring of our current capital structure, we
do not believe it will be possible to attract additional
financing to fill our funding needs. Moreover, even assuming a
successful agreement with our creditors to effect a
comprehensive restructuring is completed, we cannot be assured
that new financing will be available on acceptable terms, or at
all, given current duress in the communications industry in
general and the difficult economic conditions in the countries
in which we operate, particularly in Argentina and Brazil.

Our restructuring efforts, and the suspension of
certain debt service and principal payment obligations pending
the resolution of negotiations with creditors, have allowed us
to preserve adequate cash to sustain operations and
substantially reduced our net use of cash in the near term.

On a consolidated basis, as of December 31,
2002 we had cash and cash equivalents of $33.5 million. We
presently do not have available unused commitments under any
credit facilities. We actively manage liquidity not only in
terms of preserving cash but also with a view toward projected
cash needs in each of our country operations. Our ability to
maintain adequate liquidity for our business as a whole may
depend on our ability to move cash between our country
operations from time to time. However, due to exchange control
regulations and local fiduciary considerations, we may not be
able to transfer cash freely within our corporate group, which
restrictions could have an adverse effect on the liquidity of
one or more of our country operations.

Implementation of our restructuring program will
require cash outlays during 2003, including for the
renegotiation of financing facilities and other contractual
commitments and for the engagement of professional advisors. The
amount of professional expenses, which we estimate between
$8.0 million and $15.0 million, will be payable in
part upon completion of a successful restructuring or sale and
will be affected by factors such as the length of time required
to complete the restructuring and the amount of consideration
that may be received in any sale or investment transaction. We
believe it will be critical to the business to retain
effectively a number of key employees and officers during the
restructuring process, and accordingly we are implementing a
retention program under which retention payments will also be
payable following completion of key milestones in the
restructuring process. We estimate the aggregate amounts payable
under the retention program will range from $1.5 million to
$2.5 million during 2003.

The consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The
appropriateness of using the going concern basis in the future,
however, will be dependent upon our ability to address our
liquidity needs as described above. There is no assurance that
we will be able to address our liquidity needs through the
measures described above on acceptable terms and conditions, or
at all, and, accordingly, there is substantial doubt about our
ability to continue as a going concern.

Critical Accounting Policies and
Judgments

Our critical accounting policies are those which
we believe require significant judgments, often as a result of
the need to make estimates about the effect of matters that are
inherently uncertain. A discussion of our critical accounting
policies, the underlying judgments and uncertainties affecting
their application and the likelihood that materially different
amounts would be reported under different conditions or using
different assumptions, is as follows:

Network accounting.Our networks represent 68.3% and 34.1%
as of December 31, 2002 and 2001, respectively, of our
total assets. We use several critical accounting policies
dealing with our network accounting. First, we compute our
networks depreciation expense, which requires us to
estimate the average useful lives of each of our network
components, as well as their salvage values. Secondly, we
account for

59



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

network improvement costs including salary of
employees dedicated to the network construction and improvement
by capitalizing those costs which we believe will add value to
our networks and depreciate those improvements over their
estimated useful lives. Finally, we recognize the resulting gain
or loss on dispositions of our network components in operations.

We determine the average useful lives of our
network based primarily on our estimates of the average useful
lives of the networks major components, such as
transmission and switching equipment, operating systems, cables
and underground construction. In addition, we consider, among
other things, the impact of anticipated technological changes.

Given the complex nature of our networks, all the
above-described accounting estimates require considerable
judgment and are inherently uncertain. We do not have cost
segregation studies performed to specifically segregate our
networks into various components; therefore, our overall
estimates of the relative costs of these components are based
principally on general and technical information known about
major network components lives and our knowledge of the telecom
industry. In addition, we do not identify or track the
depreciation of specific components, but instead utilize
estimates when determining the net cost basis of assets being
replaced or refurbished. If materially different conditions
existed, or if we materially changed our assumptions of network
lives and salvage values, our depreciation expense, gain or loss
on replacement or refurbishment of network assets and net book
value of our networks could be materially different. In
addition, if we change our assumptions in making our
determination as to whether improvements to our networks add
value, the amounts we expense each year as repair and
maintenance costs could increase, partially offset by a decrease
in depreciation expense, as fewer costs would have been
initially capitalized to our networks.

We believe that the estimates we made for network
accounting purposes are reasonable, our methods are consistently
applied and the resulting depreciation expense is based on a
rational and systematic method to equitably allocate the costs
of our networks to the periods during which services are
obtained from their use. In addition, we believe that the
estimates we made are reasonable and our methods are
consistently applied (1) in determining the overall
relative costs of our networks; (2) in determining which
improvement costs add value to our networks; and (3) in
determining the net cost basis of networks components being
replaced or refurbished. Finally, we believe our critical
network accounting policies are generally comparable with those
of other major telecom companies.

Goodwill impairment.Our review of our long-lived assets,
principally goodwill and other intangibles, which accounts for
2.7% and 54.2% of our total assets as of December 31, 2002
and 2001, respectively, requires us to initially estimate the
undiscounted future cash flow of our business segments, whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be fully recoverable. If such
analysis indicates that a possible impairment may exist, we are
required to then estimate the fair value of the asset,
principally determined either by third party appraisals, sales
price negotiations or estimated discounted future cash flows,
which includes making estimates of the timing of the future cash
flows and discount rates and reflecting varying degrees of
perceived risk. During 2002, after applying the foregoing
procedures, we concluded that an impairment existed.
Accordingly, we recognized an impairment charge of
$716.3 million, reducing goodwill to zero.

The determination of fair value includes numerous
uncertainties. Significant judgments are made concerning future
revenue, operating, selling, general and administrative costs
per business segment. In addition, third party appraisers are
sometimes used to determine fair values and some of their
valuation methodologies are also subject to similar types of
uncertainties. We believe that we have made reasonable estimates
and judgments in determining whether our goodwill has been
impaired; however, if there is a material change in the
assumptions used in our determination of fair values or if there
is a material change in the conditions or circumstances
influencing fair value, may require us to recognize a material
impairment charge.

60



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Contingencies  Litigation.From time to time in the normal course
of business, we are subject to proceedings, lawsuits and other
claims. We periodically assess the potential liabilities related
to any lawsuits or claims brought against us. While it is
typically very difficult to determine the timing and ultimate
outcome of these actions, we use our best judgment to determine
if it is probable that we will incur an expense related to the
settlement or final adjudication of such matters and whether a
reasonable estimation of such probable loss, if any, can be made.

Given the inherent uncertainty related to the
eventual outcome of litigation, it is possible that all or some
of these matters may be resolved for amounts materially
different from any provisions that we may have made with respect
to their resolution.

Revenue.We
recognize data-internet services revenue when the services are
provided in accordance with contract terms. We recognize long
distance and local voice and data services revenue based upon
minutes of traffic processed or contracted fee schedules. This
includes amounts collected in advance for sales of prepaid
calling cards. We recognize other products revenue when the
products are delivered and accepted by customers.

Derivatives.We
enter into derivative contracts to mitigate market risk from
changes in foreign currency exchange rates. Generally, fair
value calculations of derivative contracts such as foreign
exchange forwards require judgment and are valued based on
market interest rates and foreign exchange rates.

Summary of Significant Accounting
Policies

A summary of the significant accounting policies
followed in the preparation of the accompanying consolidated
financial statements is presented below:

Use of estimates.The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements, and revenue and expenses during the
period reported. Actual results could differ from those
estimates. Estimates are used when accounting for certain items
such as described on our critical accounting polices above.

Principles of consolidation.The consolidated financial statements
for the years ended December 31, 2002, 2001 and 2000
include the results of operations of AT&T Latin America
Corp. and its subsidiaries. The consolidated financial
statements for the year ended December 31, 2000 include the
results of operations AT&T do Brasil for the year ended
December 31, 2000, the results of AT&T Argentina
(formerly known as Keytech) for the period from July 1,
2000 (or the first date of operations under AT&T Latin
America after its acquisition date) through December 31,
2000, and the results of operations of FirstCom Corporation (now
known as AT&T Chile, AT&T Colombia and AT&T Peru)
for the period from September 1, 2000 (or the first date of
operations under AT&T Latin America after its acquisition
date) through December 31, 2000. All material intercompany
accounts and transactions have been eliminated.

Cash and cash equivalents.Cash and cash equivalents include cash
on deposit and securities held by major financial institutions
with favorable credit ratings, with original maturities of three
months or less.

Property and equipment.Property and equipment are recorded at
cost. Construction, engineering and labor costs directly related
to the development of our networks are capitalized. We begin
depreciating these costs when the networks become commercially
operational. Depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the
respective assets.

Improvement costs that we believe add value to
our networks are capitalized and depreciated over the
improvements estimated useful lives, while cost of repairs
and maintenance are charged to expense as

61



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

incurred. Upon the replacement or refurbishment
of previously capitalized network components, these assets
estimated cost and accumulated depreciation are written-off and
any resulting gain or loss is recognized in operations. No
significant gains or losses were recognized during the three
years ended December 31, 2002.

Goodwill and other intangibles.Assets and liabilities acquired in
connection with business combinations accounted for under the
purchase method are recorded at their respective estimated fair
values. Goodwill represents the excess of the purchase price
over the estimated fair value of net assets acquired, including
the recognition of applicable deferred taxes, and was amortized
on a straight-line basis over a period of 20 years. Other
intangible assets represent the fair value of service contracts
and work forces acquired, and are amortized on a straight-line
basis over a period of 3 to 5 years.

We review our long-lived assets, identifiable
intangibles and goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of
these assets may not be fully recoverable. The assessment of
possible impairment is based on our ability to recover the
carrying value of our asset based on our estimate of discounted
future cash flows on the current projected operations of our
country operations and to a lesser extent the market
capitalization of our business. If these estimated future cash
flows are less than the carrying value of the asset, an
impairment charge is recognized for the difference between the
assets estimated fair value and its carrying value. During
2002 we recorded a goodwill impairment of $716.3 million
reducing the book value of our goodwill to zero. See
Note 10.

Derivative Instruments.Occasionally, we use derivative
instruments, currently forward contracts, to limit our exposure
to fluctuations in foreign currency exchange rates. We do not
use derivative instruments for speculative purposes. Our most
significant contracts to buy United States (U.S.)
dollars are forward contracts entered into to fix the cost in
foreign currency or in U.S. dollar of our denominated
obligations in Brazil. We also enter into contracts to buy
foreign currencies to fix the cost in U.S. dollars of our
denominated foreign currencies obligations in Argentina, Chile
and Peru.

We account for all derivative instruments on our
balance sheet at their fair value. Derivatives that are not
hedges must be recorded at fair value and the changes in fair
value must be immediately included in earnings. If a derivative
is a fair value hedge, changes in the fair value of the
derivative are offset against the changes in the fair value of
the underlying hedged firm commitment. If a derivative is a cash
flow hedge, changes in the fair value of the derivative are
recognized as a component of accumulated other comprehensive
income (AOCI) until the underlying hedged item is
recognized in earnings. The ineffective portion of a hedge
derivatives change in fair value is immediately recognized
in earnings. We formally document all relationships between
hedging instruments and hedged items, as well as our risk
management objectives and strategies for undertaking our hedge
transactions.

As of December 31, 2002, we have outstanding
undesignated forward contracts in the notional amount of
$147.8 million. The total $20.8 million fair value of
forward currency contract assets which are included as prepaid
expenses and other current assets on our December 31, 2002
balance sheet, represents unrealized gains on our forward
currency contracts selling or buying foreign currencies as
result of the strengthening or weakening of the dollar compared
to the currencies that we hedge.

Derivative gains and losses included in AOCI are
reclassified into earnings at the same time the underlying
hedged transaction is recorded in earnings. At December 31,
2002, we have no amounts recorded in other comprehensive income.

During the second quarter of 2002 we discontinued
cash flows hedge accounting for certain forward contracts and
concurrently designated the respective underlying loans as a
long-term investment. The forward contracts that were accounted
for as cash flows hedges are now being accounted for as
undesignated forward contracts and the change in the fair value
of these contracts has been accounted for as other expenses in
the accompanying statement of operations for the year ended
December 31, 2002. With the designation of the

62



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

underlying loans as long-term investment the
amount of $12.6 million previously deferred in other
comprehensive income (loss) was reclassified to other
expense in the accompanying statement of operations during the
second quarter of 2002.

Due to our current credit capacity and higher
margin requirements needed by our counter-party financial
institutions we were not able to continue our rollover strategy
on our existing forward contracts. As result, we discontinued
cash flow hedge accounting for all of our remaining portfolio of
forward contracts that are protecting us from the Brazilian real
fluctuations against the U.S. dollar on loans held by AT&T
do Brasil resulting in a charge to other expense of
$29.3 million during the third quarter of 2002. The
remaining components of other expense were foreign currency
transaction losses, fair value changes on our undesignated
forward contracts, and other non-operating expenses.

During 2001, net changes in the fair value of our
cash flow hedges amounted to unrealized losses of
$10.0 million. No fair value hedges or cash flow hedges
were de-recognized or discontinued in fiscal 2001. At
December 31, 2001, AOCI included $10.0 million of
unrealized net losses from cash flow hedge derivatives, which
amount was recognized during 2002 in the other expense line in
the accompanying statement of operations.

Revenue recognition.We recognize data-internet services
revenue when the services are provided in accordance with
contract terms. We recognize long distance and local voice and
data services revenue based upon minutes of traffic processed or
contracted fee schedules. This includes amounts collected in
advance for sales of prepaid calling cards. We recognize other
products revenue when the products are delivered and accepted by
customers.

Advertising and Promotional Expenses.Advertising and promotional expenses
are charged to operations as incurred. Advertising and
promotional expense for the years ended December 31, 2002,
2001 and 2000 was $6.4 million, $11.2 million and
$15.3 million, respectively.

Foreign currency translation and transactions.We operate in various Latin American
countries, which are subject to political, monetary, economic
and regulatory risks. For foreign subsidiaries using local
currency as their functional currency, assets and liabilities
are translated into U.S. dollars at exchange rates in effect at
the end of the reporting period. Translation adjustments
resulting from this process are reported in AOCI within
stockholders equity. Revenues and expenses of these
foreign subsidiaries and affiliates are translated at weighted
average exchange rates for the period. Exchange gains and losses
arising from transactions denominated in a currency other than
the functional currency of the entity involved are included in
the results of operations.

Software capitalization.Certain direct development costs
associated with internal-use software are capitalized, including
external direct costs of material and services, and payroll
costs for employees devoting time to the software projects.
These costs are included within other assets and are amortized
over a period not to exceed five years beginning when the asset
is substantially ready for use. Costs incurred during the
preliminary project stage, as well as maintenance and training
costs, are expensed as incurred. We also capitalize initial
operating-system software costs and amortize them over the life
of the associated hardware.

We capitalize costs associated with the
development of application software incurred from the time
technological feasibility is established until the software is
ready to provide service to customers. These capitalized costs
are included in property, plant and equipment and are amortized
over a useful life not to exceed five years.

Concentrations.We
are a majority owned subsidiary of AT&T Corp. and
consequently have a significant amount of transactions and
agreements with AT&T Corp. and its affiliates, including,
among others, our regional vehicle agreement, our service mark
license agreement and our joint sales initiative agreement. See
Note 7. Besides our relationship with AT&T Corp., as of
December 31, 2002, we do not have

63



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

any other significant concentration of business
transacted with a particular customer, supplier or lender that
could, if suddenly eliminated, severely impact our consolidated
operations. However, our country operations in Argentina and
Colombia generated a higher percentage of revenue in 2002 from a
small number of customers. We also do not have a concentration
of available sources of labor, services, franchises or other
rights that could, if suddenly eliminated, severely impact our
operations. We invest our cash with several high-quality credit
institutions.

Loss per share.Basic loss per common share is
computed by dividing income (loss) available to common
stockholders by the weighted average number of outstanding
shares of Class A and Class B common stock. Diluted
earnings per common share include the dilutive effect of stock
options using the treasury stock method. Any difference between
basic and diluted weighted average common shares outstanding
used to calculate basic and diluted earnings per share relates
to stock options assumed exercised under the treasury method of
accounting. Potentially dilutive shares as of December 31,
2001 and 2000 of approximately 1,018,655 and 7,652,318,
respectively were not included in the diluted per share
calculation because their effects would be anti-dilutive due to
our loss position. We have no dilutive shares in 2002.
Accordingly, for 2002, 2001 and 2000, diluted net loss per
common share is the same as basic net loss per common share.

Stock-Based Compensation.Pursuant to SFAS No. 123,
Accounting for Stock-Based Compensation, we elected
to use the intrinsic value method of accounting for our employee
and director stock-based compensation awards. Accordingly, we
have not recognized compensation expense for our stock option
awards. Our pro forma net loss and loss per share for the years
ended December 31, 2002, 2001 and 2000, had we elected to
adopt the fair value approach of SFAS No. 123, which
charges earnings for the estimated fair value of stock options,
would have been as follows:

|                                  |             |      |   |            |   |      |   |          |   |  |   |          |  
|--------------------------------- | ----------- | ---- | - | ---------- | - | ---- | - | -------- | - |  | - | -------- | -
|                                  |             | 2002 |   | 2001       |   | 2000
|                                  |             |      |   |            |   |     
|Net loss:                         |             |      |   |            |   |      |   |          |   |  |   |         
|                                  | As reported |      | $ | (1,102,510 | ) |      | $ | (309,973 | ) |  | $ | (132,332 | )
|                                  |             |      |   |            |   |      |   |          |   |  |   |         
|                                  | Pro forma   |      | $ | (1,125,434 | ) |      | $ | (347,947 | ) |  | $ | (141,625 | )
|                                  |             |      |   |            |   |      |   |          |   |  |   |         
|Basic and diluted loss per share: |             |      |   |            |   |      |   |          |   |  |   |         
|                                  | As reported |      | $ | (9.30      | ) |      | $ | (2.66    | ) |  | $ | (1.43    | )
|                                  |             |      |   |            |   |      |   |          |   |  |   |         
|                                  | Pro Forma   |      | $ | (9.49      | ) |      | $ | (2.99    | ) |  | $ | (1.53    | )
|                                  |             |      |   |            |   |      |   |          |   |  |   |         

As determined using the Black-Scholes
option-pricing model the weighted-average fair values of options
we granted during 2002, 2001 and 2000 were $1.17, $3.85 and
$13.18 per share, respectively, at the dates of grant. We used
the following weighted-average assumptions for fiscal 2002, 2001
and 2000, respectively; expected dividend yields of 0.00%, 0.00%
and 0.00%; expected volatility of 200.8%, 87.6% and 97.6%; risk
free interest rates of 3.7%, 6.5% and 5.9%; and expected option
life of seven years in 2002 and six years in 2001 and 2002,
respectively.

Credit risk.As part
of our ongoing control procedures, we monitor concentrations of
credit risk associated with financial institutions with which we
conduct business. Credit risk, including counter party
non-performance under derivative instruments, is considered
minimal as the Company only deals with large well-established
financial institutions.

Comprehensive income (loss).As reflected in the consolidated
statement of changes in stockholders equity, comprehensive
income (loss) is a measure of net income (loss) and all
other changes in equity that result from transactions other than
with stockholders. Comprehensive income (loss) consists of
net income (loss), foreign currency translation adjustments and
net unrealized losses on derivative instruments. Our

64



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##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

cumulative comprehensive loss was
$1,636.0 million (which includes $716.3 million of
goodwill impairment including cumulative effect of change in
accounting principle), $507.8 million and
$135.6 million as of December 31, 2002, 2001 and 2000,
respectively. Comprehensive loss was as follows (in thousands):

|                                                             |                          |                         |            |            |   |      |          |          |   |   |          |          |  
|------------------------------------------------------------ | ------------------------ | ----------------------- | ---------- | ---------- | - | ---- | -------- | -------- | - | - | -------- | -------- | -
|                                                             |                          |                        
|                                                             |                          | Year Ended December 31,
|                                                             |                          |                        
|                                                             |                          | 2002                    |            | 2001       |   | 2000
|                                                             |                          |                         |            |            |   |     
|Net loss                                                     |                          | $                       | (1,102,510 | )          |   | $    | (309,973 | )        |   | $ | (132,332 | )       
|Foreign currency translation adjustments                     |                          |                         | (25,759    | )          |   |      | (52,092  | )        |   |   | (544     | )       
|Unrealized gains (losses) on derivative
    instruments, net |                          |                         |           |            |   |      | (10,039  | )        |   |   |         |         
|                                                             |                          |                         |            |            |   |      |          |          |   |   |          |         
|                                                             | Total comprehensive loss |                         | $          | (1,128,269 | ) |      | $        | (372,104 | ) |   | $        | (132,876 | )
|                                                             |                          |                         |            |            |   |      |          |          |   |   |          |         

Income taxes.We
record income taxes using the accrual basis of accounting for
deferred income taxes. Under this method, deferred tax assets
and liabilities are recognized for the expected future tax
consequence of temporary differences between the financial
statement and income tax bases of our assets and liabilities. A
valuation allowance is established when it is more likely than
not that any or all of the deferred tax assets will not be
realized.

Fair value of financial instruments.We estimate the fair value of
financial instruments through the use of public market prices,
quotes from financial institutions and other available
information. Judgment is required in interpreting data to
develop estimates of market value and, accordingly, amounts are
not necessarily indicative of the amounts that we could realize
in a current market exchange. Our financial instruments are not
held for trading or speculative purposes. Our short-term
financial instruments, including cash and cash equivalents,
accounts receivable, prepaid expenses and other current assets,
accounts payable and other liabilities, consist primarily of
instruments without extended maturities, the fair value of
which, based on managements estimates, equaled their
carrying value. The fair value of other financial instruments we
held were as follows:

At December 31, 2002 and 2001, the fair
value of our recoverable taxes was $31.9 million and
$40.1 million, respectively. Our recoverable taxes are
mainly future inflows of foreign currencies in the countries in
which we operate and are subject to currency fluctuations. The
amount that will be ultimately collected may materially differ
from the amounts recorded on our balance sheet. Future exchange
gains or losses at the time these recoverable taxes are
collected will be reflected in our statement of operations as
other (expense) income, net.

At December 31, 2002 and 2001, the fair
value of our forward contracts was $20.8 million and
$12.0 million, respectively. The fair values of our forward
contracts were estimated based on market interest rates and
forward exchange rates.

At December 31, 2002 and 2001, long-term
other assets included marketable securities, held in Rabbi
Trusts for certain of our nonqualified benefit plans. These
assets had carrying and fair values of $2.8 million and
$1.8 million at December 31, 2002 and 2001,
respectively.

Our Mandatorily Redeemable 15% Series B
Preferred Stock is carried at its liquidation value of
$248.7 million and $215.2 million at December 31,
2002 and 2001, respectively, which includes accrued preferred
dividends.

Reclassification.Certain prior year amounts have been
reclassified to conform to the current presentation.

65



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

NOTE 2  Property and
Equipment, net

Property and equipment, net is comprised of the
following (in thousands):

|                                                |  |              |          |              |  |              |         |   |  |  |         | 
|----------------------------------------------- |  | ------------ | -------- | ------------ |  | ------------ | ------- | - |  |  | ------- | 
|                                                |  |              |          |              |  | Estimated   
|                                                |  | December 31, |          | December 31, |  | Useful Lives
|                                                |  | 2002         |          | 2001         |  | (in Years)  
|                                                |  |              |          |              |  |             
|Switching equipment                             |  | $            | 162,459  |              |  | $            | 118,542 |   |  |  | 5       | 
|Transmission equipment                          |  |              | 147,390  |              |  |              | 125,936 |   |  |  | 7       | 
|Cables                                          |  |              | 50,718   |              |  |              | 40,323  |   |  |  | 10      | 
|Underground installation                        |  |              | 147,441  |              |  |              | 108,719 |   |  |  | 25      | 
|Construction in progress                        |  |              | 12,278   |              |  |              | 87,754  |   |  |  |        | 
|Office equipment, furniture, vehicles and other |  |              | 97,139   |              |  |              | 109,149 |   |  |  | 3 to 10 | 
|Cumulative translation adjustment               |  |              | (101,146 | )            |  |              | (27,823 | ) |  |  |         | 
|                                                |  |              |          |              |  |              |         |   |  |  |         | 
|                                                |  |              | 516,279  |              |  |              | 562,600 |   |  |  |         | 
|Less: Accumulated depreciation                  |  |              | (150,857 | )            |  |              | (69,032 | ) |  |  |         | 
|                                                |  |              |          |              |  |              |         |   |  |  |         | 
|                                                |  | $            | 365,422  |              |  | $            | 493,568 |   |  |  |         | 
|                                                |  |              |          |              |  |              |         |   |  |  |         | 

Depreciation expense related to the property and
equipment was $100.8 million, $53.7 million and
$17.6 million for the years ended December 31, 2002,
2001 and 2000, respectively.

NOTE 3  Debt

Debt is comprised of the following (in thousands):

|                                                                                                               |  |              |          |              |  |   |         |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | ------------ |  | - | ------- | -
|                                                                                                               |  | December 31, |          | December 31,
|                                                                                                               |  | 2002         |          | 2001        
|                                                                                                               |  |              |          |             
|Senior secured vendor financing                                                                                |  | $            | 166,755  |              |  | $ |        |  
|Subordinated credit facility with parent company                                                               |  |              | 647,233  |              |  |   |        |  
|Revolving credit facility, at LIBOR plus 3.75%
    (5.6% to 6.4% at December 31, 2001)                         |  |              |         |              |  |   | 100,000 |  
|Subordinated credit facility, at LIBOR plus 6.00%
    (8.1% at December 31, 2001)                              |  |              |         |              |  |   | 200,000 |  
|Demand notes, at 15% fixed rate                                                                                |  |              |         |              |  |   | 175,757 |  
|Interim notes payable for equipment, at 12% fixed
    interest rates to variable interest rate LIBOR plus 5.3% |  |              |         |              |  |   | 73,803  |  
|Notes payable for equipment                                                                                    |  |              | 35,221   |              |  |   | 50,718  |  
|Other bank facilities                                                                                          |  |              | 43,581   |              |  |   | 61,864  |  
|                                                                                                               |  |              |          |              |  |   |         |  
|Total debt                                                                                                     |  |              | 892,789  |              |  |   | 662,142 |  
|Less current maturities                                                                                        |  |              | (228,491 | )            |  |   | (87,051 | )
|                                                                                                               |  |              |          |              |  |   |         |  
|Long-term debt                                                                                                 |  | $            | 664,298  |              |  | $ | 575,091 |  
|                                                                                                               |  |              |          |              |  |   |         |  

As of the date of this report we have no
available credit under any of our open facilities, and we have
suspended servicing certain debt obligations which are now past
due.

66



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Senior Secured Vendor Financing

In December 2001 we entered into senior secured
credit facilities, governed by common terms, with our strategic
equipment vendors, in an aggregate principal amount of
$298.5 million. These facilities became effective on
March 27, 2002.

The facilities are divided into two portions
comprised of a first tranche of up to $199.2 million to be
used to finance the purchase of equipment and related software
and services from the three vendors, and a second tranche of up
to $99.3 million to finance duties, taxes and interest on
the facility during the availability period. Draws under this
facility were originally available through June 2004. On
November 15, 2002 we received a communication from the
vendors indicting the termination of their open commitments
under the secured vendor financing.

Current interest is based on the default rate as
defined in the agreements of a base rate of 4.25% plus a spread
of 4.625% plus a default rate of 2.0%, or 10.875%. Accrued
interests are paid quarterly. We have paid interest through
September 30, 2002.

Under the terms of the facilities, a portion of
the net proceeds of any future equity and debt offerings by us
must be directed to prepay outstanding amounts under the
facilities.

The facilities are guaranteed by AT&T Latin
America Corp. and our operating subsidiaries, and are also
collateralized by a pledge of the shares of our operating
subsidiaries and of substantially all of our and our
subsidiaries material assets other than our rights to the
AT&T brand and under certain other agreements with AT&T
Corp.

The facilities contain customary covenants
restricting our ability to engage in certain activities,
including limitations on debt, liens, investments (including
acquisitions), restricted payments, transactions with
affiliates, asset dispositions and changes in corporate
existence. We are also required to meet certain financial tests
over the term of the facilities, relating to minimum revenue,
minimum EBITDA (earnings before interest, taxes, depreciation
and amortization as defined in the governing agreements),
maximum capital expenditures, minimum liquid assets and
available undrawn credit, ratios of debt to equity and to EBITDA
and minimum on-network ports.

The facilities provide for events of default in
the event of non-payment, failure to comply with covenants,
occurrence of a material adverse effect, inability, at any time
on or after June 30, 2003, to make loan repayments from
Argentina without the need to obtain further governmental
approvals or declaration of a debt moratorium in any of the
principal countries in which we operate, and other, customary
events, except that in the case of Argentina, the certain events
occurring before the effective date will not constitute a
moratorium.

The minimum revenue covenant in our senior
secured credit facilities requires us to have achieved a minimum
amount of revenue, which we have not met commencing with the
cumulative four quarters ended September 30, 2002.
Accordingly we have been in default under our senior secured
credit facilities, and our senior secured lenders have exercise
their right of denying us further access to the undrawn amounts
under those facilities. The lenders under the senior secured
vendor financing also are entitled to exercise other remedies,
including accelerating all outstanding amounts drawn under those
facilities and declaring those amounts to be immediately due and
payable, and commencing foreclosure proceedings on our assets,
including on the shares of our operating companies. In addition,
we do not expect to be able to comply with other covenants under
our senior secured vendor financing facilities going forward in
2003, including the minimum revenue covenant and covenants
relating to minimum EBITDA and liquidity targets. All of our
vendors have requested reasonable assurances from us as to our
ability to re-pay the debt outstanding. At the present time we
are not able to provide the vendors reasonable assurances with
respect to our ability to re-pay the debt outstanding and to
make payments for new equipment as it is shipped or received and
thus may not be able to

67



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

obtain financing under the facilities for
shipments of additional equipment from the vendors for the
foreseeable future. Therefore, we have reclassified amounts
outstanding under this facility as shortterm debt in the
accompanying consolidated balance sheet as of December 31,
2002.

Subordinated Credit Facilities (Related
Parties)

During the first quarter of 2002, we signed an
agreement with AT&T Corp. for the restructuring of the
financing provided under the $100.0 million and
$200.0 million credit facilities as well as
$98.0 million provided under demand notes. The
restructuring provided additional borrowings of
$150.0 million, which included the refinancing of
$87.0 million available via demand notes as of
December 31, 2001 (of which $77.8 million was
outstanding) and additional financing of up to
$63.0 million. The restructuring and additional financing
became effective concurrently with the senior secured vendor
financing on March 27, 2002. While the senior secured
vendor financing is outstanding, we are entitled to defer
payment of all accrued and future interest through the maturity
date of the loans of October 2008, and we are also entitled to
defer payment of accrued and future dividends on the Mandatorily
Redeemable 15% Series B Cumulative Preferred Stock through
that date. A portion of the $100.0 million tranche, plus
capitalized interest, of the loans bore interest at LIBOR plus
3.75% until August of 2002, and now bear interest at a fixed
rate of 14.0%. The $200.0 million and $98.0 million
portions, plus capitalized interest are fixed at a 15.0%
interest rate. The remaining $150.0 million portion pays a
fixed interest of 15.3%. The weighted average interest rate as
of December 31, 2002 was 14.9%. At December 31, 2002,
we have capitalized deferred interest of $100.0 million as
part of the debt. As of December 31, 2002, we have borrowed
the full available amounts under these AT&T Corp. facilities.

As part of the restructuring, we issued to
AT&T Corp. warrants to acquire approximately
4.9 million shares of our Class A common stock. Half
of these warrants are exercisable at a price of $8.00 per share
and the other half are exercisable at a price of $0.01 per
share. The warrants have been valued using the Black-Scholes
pricing model with the following assumptions: 6 years
expected life; a volatility factor of 132.0%; and a risk-free
interest rate of 5.2%. The warrants are exercisable immediately,
and the total amount of the warrants was included as part of the
determination of the loss on debt restructuring. The debt
restructuring resulted in an extraordinary loss of
$6.3 million.

The debt facilities with AT&T Corp. include
customary covenants that are based on certain of the covenant
provisions contained in our senior secured vendor financing.
Under a subordination agreement between AT&T Corp., the
vendor creditors and us, relating to the AT&T financing
facilities (including the Mandatorily Redeemable Series B
15% Cumulative Preferred Stock), interest and preferred
dividends are not payable in cash and AT&T Corp. remedies
upon any default are suppressed until October 2008, or such
earlier date as the vendor financing has been repaid in full,
subject to certain negotiated exceptions.

Notes Payable to Other Vendors

In November 1998 a subsidiary of FirstCom
Corporation (which we acquired in the FirstCom merger) entered
into a vendor financing agreement with one of its equipment
vendors. This vendor financing agreement, as amended, provided
for a maximum financing amount of $29.5 million, an
interest rate of LIBOR plus 5.5% and is repayable in 20
consecutive quarterly payments of principal and interest from
the date of the related borrowings. The financed equipment
collateralizes this vendor financing. As of December 31,
2002, there was approximately $6.2 million outstanding
under this vendor financing bearing interest at a weighted
average annual rate of 8.1%. The availability period for
drawings under this financing agreement expired on
December 31, 2000. Uncured breaches of covenants under our
senior secured vendor financing facility are also events of
default under this facility. Therefore, we have reclassified
amounts outstanding under this facility as shortterm debt
in the accompanying consolidated balance sheet as of
December 31, 2002.

68



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In July, August and September 2001, we entered
into several vendor financing agreements with an equipment
vendor maturing at various dates through April 2004 bearing
interest at LIBOR plus 7.0%, or 10.9%. In June 2002, we signed
an agreement with the vendor for the restructuring of the
financing provided under these vendor financing agreements.
Under the restructuring agreement it was agreed to reduce the
principal outstanding from $9.5 million to
$8.6 million as well as to reduce the of interest rate from
LIBOR plus 7.0% to LIBOR plus 0.0%. The restructuring also
provided for quarterly payment of interest commencing in August
2002 with a maturity of the principal in April 2004. As of
December 31, 2002 there was $7.6 million outstanding.
The debt restructuring resulted in an extraordinary gain of
$1.8 million, resulting from the reduction of principal and
accrued interest. At December 31, 2002 we have no
availability under these notes payable.

We entered into several short-term vendor
financing agreements maturing in various dates through March
2003 for the development of our networks in Argentina.
Borrowings under this agreement bear interest at fixed rates
ranging from 11.9% to 17.5% per annum and variable rates based
on LIBOR plus 8.0%. At September 30, 2002, there was an
aggregate $21.4 million face amount outstanding under these
facilities. We have no availability under these notes payable.
In June 2002 the vendor initiated a legal proceeding against us
and our subsidiary in Argentina, concerning obligations under
the promissory notes due in May 2002, which we did not pay due
to a disagreement over the governing law and the effect of
changes in laws in Argentina on the principal amount of such
notes. In June 2002, we also received a complaint in New York
Supreme Court from an investment fund that has informed us it
received an assignment of one of these notes, which we also did
not pay when due in May 2002 due to our view of the applicable
governing law and effects of changes in law in Argentina. See
additional information regarding these proceedings in Note 9.

Other Bank Facilities

AT&T do Brasil is party to several local bank
facilities and capital leases providing for borrowings of an
aggregate amount of $25.7 million maturing through February
2004. At December 31, 2002, there was an aggregate of
$25.7 million outstanding under these facilities.
Borrowings under these facilities bear interest at fixed rates
ranging from 2.2% to 13.0% per annum and variable rates based
upon LIBOR plus a margin ranging from 1.6% to 1.9%. At
December 31, 2002 we had no availability under these
facilities. Certain banks in Brazil have intitiated legal
proceedings against us. See Note 9.

AT&T Colombia is party to several local bank
facilities providing for borrowings of an aggregate amount of
$10.1 million maturing through May 2006. At
December 31, 2002, there was an aggregate of
$10.1 million outstanding under these facilities.
Borrowings under these facilities bear interest at fixed rates
ranging from 8.9% to 12.5% per annum and variable rates based
upon Depósito Término Fijo (DTF) plus a margin
ranging from 4.5% to 7.0%. The average Colombian peso interest
rate, or DTF, for the year ended December 31, 2002 was
approximately 8.5%.

AT&T Peru is party to several local bank
facilities providing for borrowings of an aggregate amount of
$7.0 million, maturing on various dates through June 2011.
At December 31, 2002, there was an aggregate of
$7.0 million outstanding under these facilities. Borrowings
under these facilities bear interest at fixed and variable rates
ranging from 7.5% to 12.5% per annum.

AT&T Argentina and AT&T Chile are each
party to several local bank facilities providing for borrowings
(including certain capital leases) of an aggregate amount of
$0.8 million, maturing on various dates through October
2010. At December 31, 2002 there was an aggregate of
$0.8 million outstanding under these facilities bearing
interest at fixed interest rates ranging from 9.0% to 17.5%.

69



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002 we have
approximately $43.6 million outstanding under these bank
facilities. At December 31, 2002, we had no availability
under these local bank facilities. As a result of our current
financial condition, we believe it will be difficult to renew or
refinance many of these facilities. See Note 1.

Our local bank facilities contain various events
of default which vary by facility, including among others,
non-payment, property seizure, a change of control affecting the
Companys financial capabilities, and in the case of
certain facilities, a deterioration in the local companys
financial position or default in the payment of debt held by a
third party. We have stopped servicing certain loans in Brazil
and Colombia. We have received notice of non-payment from one
the Brazilian banks and legal proceedings have been initiated by
the bank. See Note 9. We are currently in discussions with
the banks regarding these amounts.

Failure to pay outstanding amounts due under
these facilities will generally entitle the lender of that
facility to accelerate other obligations under its facility and
may entitle other local bank lenders in the applicable country,
and in some cases other countries, to accelerate payments due
under their facilities and pursue remedies available under the
local facilities and under law. In addition, if the vendors
exercise remedies available to them under the senior secured
vendor financing facility to accelerate all outstanding amounts
and/or to foreclose on our assets that secure that facility or
in certain other circumstances, we may be in default under
certain of the local bank facilities, which could result in
acceleration of those local bank facilities and other notes
payable as well as the pursuit of other remedies available under
law. In such cases, we will likely need to seek protection from
our creditors under U.S. bankruptcy law and, depending on
remedies that may be pursued by these creditors, under the laws
of some or all of the countries in which we operate.

Our debt matures as follows (in thousands):

|                          |  |   |         | 
|------------------------- |  | - | ------- | 
|2003.                     |  | $ | 221,095 | 
|2004.                     |  |   | 18,560  | 
|2005.                     |  |   | 1,400   | 
|2006.                     |  |   | 1,031   | 
|2007.                     |  |   | 809     | 
|Thereafter (through 2008) |  |   | 649,894 | 
|                          |  |   |         | 
|                          |  | $ | 892,789 | 
|                          |  |   |         | 

NOTE 4  Redeemable
Preferred Stock and Capital Stock

On August 28, 2000, we issued to Global Card
Holdings, Inc., a wholly-owned subsidiary of AT&T Corp.,
100,000 shares of our non-voting, non-convertible and
non-participating Mandatorily Redeemable 15% Series B
Cumulative Preferred Stock having an aggregate liquidation value
as of December 31, 2002 and December 31, 2001 of
$248.7 million and $215.2 million, respectively. The
shares of Mandatorily Redeemable 15% Series B Cumulative
Preferred Stock entitle Global Card Holdings to receive
dividends at an annual rate of 15%, payable semi-annually. In
March 2002 Global Card Holdings agreed to certain amendments to
the terms of the redeemable preferred stock. The amendments
provided that the first date of redemption at the option of any
holder would be deferred until October 2008 and that dividends
would not be payable in cash unless permitted under the
Subordination Agreement related to our senior secured vendor
financing, in each case subject to certain exceptions as
permitted under the vendor financing agreements. The
accompanying statements of operations for the year ended
December 31, 2002 and 2001 include $33.5 million and
$21.4 million, respectively, recorded as interest expense
related to the dividend on our Mandatorily Redeemable 15%
Series B Cumulative Preferred Stock. The amount recorded as
interest expense for the three years ended December 31,
2002 and 2001 was $33.5 million and $21.4 million,
respectively.

70



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We are authorized to issue 460,000,000 shares of
capital stock, consisting of 300,000,000 shares of Class A
common stock, par value $0.0001 per share, 150,000,000 shares of
Class B common stock, par value $0.0001 per share, and
10,000,000 shares of preferred stock, par value $.0001 per
share. At December 31, 2002 and December 31, 2001,
45,629,017 and 45,224,017 shares, respectively, of Class A
common stock were issued and outstanding. At December 31,
2002 and December 31, 2001, we had 73,081,595 shares of
Class B common stock issued and outstanding.

Holders of AT&T Latin Americas
Class A common stock have one vote per share, and holders
of Class B common stock have ten votes per share, on all
matters to be voted on by stockholders, including the election
of directors. Class B shares are convertible into
Class A shares on a share-for-share basis at the option of
the holder at any time, or automatically upon transfer to a
person or entity which is not a permitted transferee. Permitted
transferees include AT&T Corp. and any person or entity in
which it owns directly or indirectly 50% or more of the equity
securities.

Note 5  Stock Option
Plans

Our board of directors approved our 2000 Long
Term Incentive Plan after the FirstCom merger (the 2000
Plan), which was approved by our stockholders at our
annual meeting in May 2001. The 2000 Plan authorizes the
granting of awards (including options and restricted stock) for
the issuance of shares of our Class A common stock in an
aggregate amount of 17,444,452, or 15% of our total outstanding
capital stock at the time the FirstCom merger was completed.
Typically, options under this plan are granted at fair market
value at the date of grant, vest between three to five years and
terminate no later than 10 years from the date of grant.
Under this plan there were approximately 3,633,811 shares
underlying awards available for grant at December 31, 2002.

With the acquisition of FirstCom, we assumed the
outstanding stock options under FirstComs plan, which
amounted to approximately 8,432,166 options as of
August 28, 2000. The stock options assumed from FirstCom
are separate from, and not subject to the capacity limits under,
our 2000 Plan.

71



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of all stock option
transactions, including the assumed options from FirstCom:

|                              |                                |         |            |            |   |  |      |       | 
|----------------------------- | ------------------------------ | ------- | ---------- | ---------- | - |  | ---- | ----- | 
|                              |                                |         |            | Weighted  
|                              |                                |         |            | Average   
|                              |                                | Stock   |            | Exercise  
|                              |                                | Options |            | Price     
|                              |                                |         |            |           
|Outstanding December 31, 1999 |                                |         |           |            |   |  |     |      
|                              | Options assumed in acquisition |         |            | 8,432,166  |   |  |      | 5.98  | 
|                              | Options granted                |         |            | 3,366,500  |   |  |      | 16.12 | 
|                              | Options exercised              |         |            | (200,000   | ) |  |      | 2.25  | 
|                              | Canceled                       |         |            |           |   |  |      |      | 
|                              |                                |         |            |            |   |  |      |      
|Outstanding December 31, 2000 |                                |         | 11,598,666 |            |   |  | 8.99 |      
|                              | Options granted                |         |            | 8,778,300  |   |  |      | 4.73  | 
|                              | Options exercised              |         |            |           |   |  |      |      | 
|                              | Canceled                       |         |            | (1,654,400 | ) |  |      | 9.62  | 
|                              |                                |         |            |            |   |  |      |      
|Outstanding December 31, 2001 |                                |         | 18,722,566 |            |   |  | 6.94 |      
|                              | Options granted                |         |            | 4,040,000  |   |  |      | 1.25  | 
|                              | Options exercised              |         |            |           |   |  |      |      | 
|                              | Canceled                       |         |            | (3,417,768 | ) |  |      | 5.97  | 
|                              |                                |         |            |            |   |  |      |      
|Outstanding December 31, 2002 |                                |         | 19,344,798 |            |   |  | 5.92 |      
|                              |                                |         |            |            |   |  |      |      

The weighted-average grant-date fair value of
options granted during the years ended December 31, 2002,
2001 and 2000, was $1.17, $3.85 and $13.18, respectively. As of
December 31, 2002, there were 9,947,452 stock options
vested with a weighted average exercise price of $6.19.

The following table summarizes information about
stock options outstanding at December 31, 2002:

|               |  |                           |            |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 
|-------------- |  | ------------------------- | ---------- | ------------------- |  | -------- | --- | --------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|               |  |                           |            |                    
|               |  | Stock Options Outstanding |            | Options Exercisable
|               |  |                           |            |                    
|               |  |                           |            | Weighted            |  |          |     |          
|               |  | Number of                 |            | Average             |  | Weighted |     |           |  | Weighted
|               |  | Stock                     |            | Remaining           |  | Average  |     | Number of |  | Average 
|               |  | Options                   |            | Contractual         |  | Exercise |     | Stock     |  | Exercise
|Exercise Price |  | Outstanding               |            | Life                |  | Price    |     | Options   |  | Price   
|               |  |                           |            |                     |  |          |     |           |  |         
|$0.01-$1.74    |  |                           | 4,214,333  |                     |  |          | 8.1 |           |  | $        | 1.27  |  |  |  | 813,333   |  |  | $ | 1.39  | 
|$1.74-$3.48    |  |                           | 3,128,083  |                     |  |          | 4.9 |           |  | $        | 2.37  |  |  |  | 3,056,833 |  |  | $ | 2.35  | 
|$3.49-$5.25    |  |                           | 4,722,852  |                     |  |          | 6.9 |           |  | $        | 4.53  |  |  |  | 2,336,288 |  |  | $ | 4.37  | 
|$5.26-$7.00    |  |                           | 2,269,030  |                     |  |          | 6.8 |           |  | $        | 5.66  |  |  |  | 990,220   |  |  | $ | 5.79  | 
|$7.01-$8.75    |  |                           | 194,500    |                     |  |          | 5.5 |           |  | $        | 7.98  |  |  |  | 166,000   |  |  | $ | 8.00  | 
|$8.76-$10.50   |  |                           | 32,500     |                     |  |          | 3.1 |           |  | $        | 9.78  |  |  |  | 28,750    |  |  | $ | 9.86  | 
|$10.51-$12.25  |  |                           | 2,595,000  |                     |  |          | 6.7 |           |  | $        | 10.77 |  |  |  | 1,352,778 |  |  | $ | 10.97 | 
|$12.26-$14.00  |  |                           | 54,500     |                     |  |          | 1.5 |           |  | $        | 13.59 |  |  |  | 32,250    |  |  | $ | 13.21 | 
|$16.01-$21.21  |  |                           | 2,134,000  |                     |  |          | 6.6 |           |  | $        | 17.28 |  |  |  | 1,171,000 |  |  | $ | 17.28 | 
|               |  |                           |            |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 
|               |  |                           | 19,344,798 |                     |  |          | 6.8 |           |  | $        | 5.92  |  |  |  | 9,947,452 |  |  | $ | 6.19  | 
|               |  |                           |            |                     |  |          |     |           |  |          |       |  |  |  |           |  |  |   |       | 

We adopted the disclosure-only provisions of SFAS
123 and retained the intrinsic value method of accounting for
such stock based compensation. Therefore, no compensation cost
has been recognized for

72



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

options granted to employees and members of the
board of directors. All options granted during 2002, 2001 and
2000 were granted at fair market value at the date of the grant.

During 2002 we issued 505,000 restricted shares
of class A common stock to employees in exchange for future
services under the 2000 Plan limits. The restricted stocks have
a vesting period of two years. A compensation charge of
$0.1 million, representing the vested portion of the
grants, was recognized as compensation expense in the
accompanying consolidated statements of operations for the year
ended December 31, 2002.

During 2001 we issued 283,750 stock options to
non-employees under the 2000 Plan limits in connection with
settlements of certain claims for which a compensation charges
of approximately $0.5 million was recognized as
compensation expense in the accompanying consolidated statement
of operations for the year ended December 31, 2001. We also
issued 2,009,259 restricted shares of class A common stock to
employees in exchange for future services under the 2000 Plan
limits. A compensation charge of approximately $0.4 million
and $45,000, representing the vested portion of the grants, was
recognized as compensation expense in the accompanying
consolidated statements of operations for the year ended
December 31, 2002 and 2001, respectively.

NOTE 6  Income
Taxes

The tax effects of significant items comprising
our net deferred tax liability as of December 31, 2002,
2001 and 2000 are as follows (in thousands):

|                                     |                        |                                |        |          |        |      |        |          |        |   |        |         |        |  
|------------------------------------ | ---------------------- | ------------------------------ | ------ | -------- | ------ | ---- | ------ | -------- | ------ | - | ------ | ------- | ------ | -
|                                     |                        | 2002                           |        | 2001     |        | 2000
|                                     |                        |                                |        |          |        |     
|Deferred tax assets:                 |                        |                                |        |          |        |      |        |          |        |   |        |        
|                                     | Net operating losses   |                                | $      | 290,272  |        |      | $      | 135,128  |        |   | $      | 63,327  |       
|                                     | Bad debts              |                                |        | 138      |        |      |        | 1,281    |        |   |        | 1,281   |       
|                                     | Pre-operating expenses |                                |        | 4,489    |        |      |        | 4,489    |        |   |        | 4,489   |       
|                                     | Non-cash compensation  |                                |        | 394      |        |      |        | 567      |        |   |        | 567     |       
|                                     | Other                  |                                |        | 1,074    |        |      |        | 1,674    |        |   |        | 291     |       
|                                     | Valuation allowance    |                                |        | (295,479 | )      |      |        | (142,018 | )      |   |        | (69,392 | )     
|                                     |                        |                                |        |          |        |      |        |          |        |   |        |        
|                                     |                        | Total deferred tax assets      |        |          | 888    |      |        |          | 1,121  |   |        |         | 563    |  
|                                     |                        |                                |        |          |        |      |        |          |        |   |        |        
|Deferred tax liabilities:            |                        |                                |        |          |        |      |        |          |        |   |        |        
|                                     | Property and equipment |                                |        | (2,846   | )      |      |        | (3,043   | )      |   |        | (2,638  | )     
|                                     | Intangible assets      |                                |        | (1,775   | )      |      |        | (1,637   | )      |   |        | (1,913  | )     
|                                     | Other                  |                                |        | (327     | )      |      |        | (501     | )      |   |        | (72     | )     
|                                     |                        |                                |        |          |        |      |        |          |        |   |        |        
|                                     |                        | Total deferred tax liabilities |        |          | (4,948 | )    |        |          | (5,181 | ) |        |         | (4,623 | )
|                                     |                        |                                |        |          |        |      |        |          |        |   |        |        
|Net deferred tax asset (liabilities) |                        | $                              | (4,060 | )        |        | $    | (4,060 | )        |        | $ | (4,060 | )      
|                                     |                        |                                |        |          |        |      |        |          |        |   |        |        

SFAS No. 109 requires a valuation allowance
to reduce deferred tax assets if, based on the weight of the
available evidence, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. In
determining the need for a valuation allowance, SFAS
No. 109 requires an assessment of all available evidence
both positive and negative. Management has determined that a
$$295.5 million and a $142.0 million valuation allowance
was necessary at December 31, 2002 and 2001, respectively.
A significant portion of the deferred tax assets is related to
net operating loss carry forwards. Because we operate in
multiple off shore jurisdictions, we considered the need for a
valuation allowance on a country-by-country basis.

73



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The U.S. Federal tax rate reconciles to the
worldwide effective tax rate as follows:

|                                                         |  |      |       |      |  |      |       |    |  |  |       |   
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                         |  | 2002 |       | 2001 |  | 2000
|                                                         |  |      |       |      |  |     
|U.S. statutory federal rate applied to pretax
    income |  |      | (35.0 | %)   |  |      | (35.0 | %) |  |  | (35.0 | %)
|State taxes, net of federal income taxes                 |  |      | (0.1  | %)   |  |      | (0.2  | %) |  |  | (3.0  | %)
|Goodwill amortization                                    |  |      |      |      |  |      | 3.8   | %  |  |  | 3.1   | % 
|Goodwill impairment                                      |  |      | 23.3  | %    |  |      |      |    |  |  |      |   
|Preferred stock dividend accretion                       |  |      | 1.1   | %    |  |      | 3.3   | %  |  |  | 2.4   | % 
|Unutilized foreign losses                                |  |      |      |      |  |      |      |    |  |  |      |   
|Valuation allowance                                      |  |      | 14.2  | %    |  |      | 23.5  | %  |  |  | 32.5  | % 
|Other                                                    |  |      | (3.5  | %)   |  |      | 4.6   | %  |  |  |      |   
|                                                         |  |      |       |      |  |      |       |    |  |  |       |   
|                                                         |  |      | 0.0   | %    |  |      | 0.0   | %  |  |  | 0.0   | % 
|                                                         |  |      |       |      |  |      |       |    |  |  |       |   

For the year ended December 31, 2002, the
effective income tax rate varies from the statutory U.S. federal
income tax rate as a result of the non-deductible items and the
need for a valuation allowance.

At December 31, 2002, we have U.S. federal
and state net operating loss carry forwards of approximately
$226.0 million expiring through 2022.

We have foreign net operating loss carry forwards
of approximately $538.7 million and $212.0 million at
December 31, 2002 and 2001 respectively, which have no
expiration date. At December 31, 2001 we also have
$72.0 million of foreign net operating loss carry forwards
expiring through 2007.

In connection with the FirstCom merger, we
acquired certain U.S. federal and state net operating loss carry
forwards and certain foreign net operating loss carry forwards
which are subject to a full valuation allowance. If, in the
future, the realization of these acquired net operating loss
carry forwards becomes more likely than not, any reduction of
the associated valuation allowance will be allocated to
purchased intangibles.

During 2000, we completed acquisitions that
included certain changes in the ownership of the target
companys stock. The Internal Revenue Code restricts the
amount of future income that may be offset by the net operating
losses and credits incurred prior to an ownership change. In
addition, the target company had net operating loss limitations
that arose from transactions they had entered into in prior
years, which further limits the utilization of net operating
losses.

NOTE 7  Certain
Relationships and Related Transactions

Service Mark License Agreement with AT&T
Corp.Our service mark license
agreement with AT&T Corp. provides for AT&T Corp. to
license service marks, including AT&T and the
AT&T with a fanciful globe design mark, to us for our use.
We may also use the AT&T mark as part of our
trade and corporate names so long as at least half of the
licensed services meet service specifications provided by
AT&T Corp.

During the term of the service mark license
agreement, we are obligated to pay a fee to AT&T Corp. every
six months equal to the greater of $2.5 million and a
designated percentage of our gross revenues, currently 3.25%.
The fee is creditable against certain specified brand management
and service marketing expenses we incur in our local operations.
For the years ended December 31, 2002, 2001 and 2000, we
expensed approximately $5.6 million, $6.1 million and
$1.7 million, respectively, related to this service mark
license agreement fee.

The initial term of the license ends on
August 28, 2005. The agreement will automatically renew for
an additional five years if we are not in default under or
breach of the license agreement. AT&T Corp. may terminate
the license prior to the end of its scheduled term in the event
of non-payment by us, if AT&T Corp. no longer owns shares
having voting control of our Company or if we misuse the marks
or otherwise materially breach our obligations under the service
mark license agreement and are not able to correct the breach in
a

74



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

timely fashion. As of December 2002 and 2001, we
had a net amount due to AT&T Corp. related to the Service
Mark License Agreement of $0.8 million and
$0.6 million, respectively.

Credit Facility and Demand Notes.AT&T Corp. and a wholly owned
subsidiary of AT&T Corp. provided us with facilities and
demand notes of up to $548.0 million principal amount.
These facilities and notes were restructured in March 2002. See
Notes 3 and 11.

Stockholder Loan.The amounts loaned to
Mr. Northland, our Chief Executive Officer, represented a
refinancing of a loan extended initially by FirstCom to finance
his purchase of 800,000 restricted common shares of FirstCom
prior to the FirstCom merger. The loan is secured by the 800,000
shares of AT&T Latin America Class A common stock
received by Mr. Northland and bears interest at a fixed
annual rate of 5.41%. The principal and all accrued interest are
due on March 1, 2010. After evaluating the value of our
shares securing the loan, we believe that we may not be able to
recover the amounts due under this loan. Consequently we have
established a full allowance for the amount of
$10.4 million in 2002; however, the Company has not
relinquished any contractual rights it may have with respect to
this loan.

Restricted Stock and Other Compensation.During November 2001, we issued under
our 2000 Plan in exchange for future services 2,000,000 shares
of restricted Class A common stock to our president and
Chief Executive Officer. The restrictions on the shares lapse
over a five-year period as follows: 15% on the first
anniversary, 20% on the second anniversary, 30% on the third
anniversary, 20% on the fourth anniversary, and 15% on the fifth
anniversary. If the price of our Class A common stock
trades at $5.00 or more for a period of five days, restrictions
will lapse on a number of additional shares that together with
shares on which the restrictions had previously lapsed total
1,000,000 shares. If the price of our Class A common trades
at $6 or more for a period of five days, restrictions on the
remaining restricted shares will lapse. During 2002 and 2001,
the vested portion of this grant of $410,833 and $33,250,
respectively, representing 308,333 shares in 2002 and 25,000
shares in 2001, was recorded as compensation expense. We also
agreed to pay a tax gross-up on the taxable income resulting to
Mr. Northland, which resulted in payment of
$1.6 million to the Internal Revenue Service for the
further benefit of Mr. Northland. In addition,
Mr. Northland has an agreement to receive retention bonus
of $750,000 in each of 2002, 2003, 2004 and 2005 as well as a
tax gross-up on such amounts on his behalf.

Other.As of
December 31, 2002 and 2001, we included in accounts payable
the net amount of $6.6 million and $4.4 million,
respectively, for services provided by AT&T Corp. and its
affiliates. During 2002 and 2001, we purchased services from
AT&T Corp. and its affiliates including operations support
systems, consulting services, telecommunications services
related to our delivery of managed internet and long distance
services and customer care support in the amount of
$21.4 million and $4.5 million, respectively.

During 2002 we also sold telecommunication
services to AT&T Corp. and its affiliates in the amount of
$7.2 million, of which $1.9 million was outstanding
and included in accounts receivable as of December 31, 2002.

NOTE 8  Operations by
Geographic Areas and Segments

Our operations are segregated and measured by
country and segmented by data-internet and voice services. We
currently derive a substantial portion of our revenue from
data-internet services. For the years ended December 31,
2002, 2001 and 2000, approximately 62.4%, 58.4% and 79.1%,
respectively, were generated from data-internet services. No
single customer or group of customers accounted for more that
10.0% of total revenue.

Our chief operating decision makers measure our
operating results by country and use EBITDA as an important
measure to our country operating results and performance.

75



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

EBITDA.EBITDA is an
important measure used by our chief operating decision makers to
measure our country operating results and performance. We
calculate EBITDA as loss from operations plus depreciation and
amortization expense plus impairment loss on goodwill plus
allowance for stockholder loan. Management believes EBITDA is
meaningful to investors because they provide analyses of
operating results using the same measure used by our chief
operating decision makers. In addition, we believe that EBITDA
allows investors a means to evaluate the financial results of
each segment in relation to our total operations. Our
calculations of EBITDA may or may not be consistent with the
calculation of this measure by other public companies. EBITDA
should not be viewed by investors as an alternative to generally
accepted accounting principles (GAAP) measure of income as
a measure of performance or to cash flows from operating,
investing and financing activities as a measure of liquidity. In
addition, EBITDA does not take into account changes in certain
assets and liabilities as well as interest and income taxes
which can affect cash flows.

CAPEX.Management
believes that CAPEX is a meaningful measure used by our chief
operating decision makers to measure our countries operational
performance. We calculate CAPEX, or capital expenditures, as
gross property and equipment purchased, net of dispositions, but
excluding translation adjustments resulting from our countries
that use local currencies as functional currencies. CAPEX should
not be viewed by investors as an alternative to generally
accepted accounting principles (GAAP) measure of income as
a measure of performance or to cash flows from operating,
investing and financing activities as a measure of liquidity.

Data-Internet services.Our data-Internet services feature
local, national and international reach, high availability and
high security featuring our common ATM/ IP, or asynchronous
transfer mode/ Internet protocol multi-service network platform
and are accessible via single connections (one port per
location) to our broadband network:

     Data
Services.Our data services consist of basic connection
services, such as point-to-point dedicated private lines, and
private multipoint network services, which include offering and
managing communications links among a number of locations, as
wide area network services, enabling intranet and extranet
connectivity. The basic infrastructure plus supporting services
(available or being deployed) allow us to implement different
communications applications to support a wide range of
customers needs. As part of our data services, we provide
secured private IP services, frame relay, ATM and clear channel
services.

     Internet
Services.Our Internet services consist of dial-up and
high-speed dedicated access services offered primarily to
businesses, as well as to Internet service providers and content
providers. Our integrated package to Internet service providers
and portals allows these customers to purchase and/or lease
their entire access infrastructure from us.

     Managed
Services.Our managed service offers include managed data,
Internet and web hosting services.

Voice Services.Voice services are an important
component of our service portfolio. Our portfolio of voice
services includes local telephony and long distance services,
pre-paid and calling card services and 800 and operator
assistance services, depending on our competitive situation and
regulatory restrictions in each country. We package these
services differently depending on the customer we are targeting.
We offer to business customers all available voice services
through a combination of different offers. To the consumer
mass-market, we offer a more selective set of services, which
require little or no customization, and minimum employee
resources, which enables us to use available network capacity,
particularly during non-business hours. Voice services are also
an important point of entry for other services, particularly
with small and medium sized enterprises.

76



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth, for 2002, 2001
and 2000 certain information about segment results of operations
and segment assets (in thousands):

|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |           | 
|------------------------------------------ | ------------- | --------- | ------- | ------- |  | ----- | -------- | -------- |  | ---- | -------- | -------- |  | ----- | ------- | ------ |  | - | -------- | ------- |  | - | ------- | ------- | - | - | -------- | --------- | 
|                                           |               | Argentina |         | Brazil  |  | Chile |          | Colombia |  | Peru |          | Other(1) |  | Total
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |      
|2002                                       |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|REVENUE:                                   |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Data-internet services                     |               | $         | 7,013   |         |  | $     | 42,866   |          |  | $    | 13,390   |          |  | $     | 22,915  |        |  | $ | 17,170   |         |  | $ |        |         |   | $ | 103,354  |          
|Voice services                             |               |           | 13,205  |         |  |       | 7,890    |          |  |      | 19,996   |          |  |       | 502     |        |  |   | 25,559   |         |  |   | (4,913  | )       |   |   | 62,239   |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | TOTAL REVENUE |           |         | 20,218  |  |       |          | 50,756   |  |      |          | 33,386   |  |       |         | 23,417 |  |   |          | 42,729  |  |   |         | (4,913  | ) |   |          | 165,593   | 
|Cost of revenue                            |               |           | 16,950  |         |  |       | 31,477   |          |  |      | 24,014   |          |  |       | 12,484  |        |  |   | 23,599   |         |  |   | (4,913  | )       |   |   | 103,611  |          
|Selling, general & administrative expenses |               |           | 9,413   |         |  |       | 27,724   |          |  |      | 10,706   |          |  |       | 9,486   |        |  |   | 15,684   |         |  |   | 46,306  |         |   |   | 119,319  |          
|Depreciation and amortization              |               |           | 38,923  |         |  |       | 25,250   |          |  |      | 8,837    |          |  |       | 15,052  |        |  |   | 14,716   |         |  |   | 10,982  |         |   |   | 113,760  |          
|Impairment loss on goodwill                |               |           |        |         |  |       | 88,469   |          |  |      | 195,000  |          |  |       | 50,000  |        |  |   | 115,000  |         |  |   |        |         |   |   | 448,469  |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Loss from operations                       |               | $         | (45,068 | )       |  | $     | (122,164 | )        |  | $    | (205,171 | )        |  | $     | (63,605 | )      |  | $ | (126,270 | )       |  | $ | (57,288 | )       |   | $ | (619,566 | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | Total assets  |           | $       | 137,463 |  |       | $        | 147,614  |  |      | $        | 55,865   |  |       | $       | 52,569 |  |   | $        | 110,738 |  |   | $       | 30,206  |   |   | $        | 534,455   | 
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Capital expenditures                       |               | $         | 2,857   |         |  | $     | 13,789   |          |  | $    | 7,523    |          |  | $     | 3,933   |        |  | $ | 8,649    |         |  | $ | 1,634   |         |   | $ | 38,385   |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|EBITDA (2)                                 |               | $         | (6,145  | )       |  | $     | (8,445   | )        |  | $    | (1,334   | )        |  | $     | 1,447   |        |  | $ | 3,446    |         |  | $ | (35,915 | )       |   | $ | (46,946  | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|2001                                       |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|REVENUE:                                   |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Data-internet services                     |               | $         | 5,865   |         |  | $     | 40,542   |          |  | $    | 12,115   |          |  | $     | 15,329  |        |  | $ | 14,267   |         |  | $ |        |         |   | $ | 88,118   |          
|Voice services                             |               |           | 12,138  |         |  |       | 6,050    |          |  |      | 25,834   |          |  |       | 112     |        |  |   | 20,563   |         |  |   | (1,905  | )       |   |   | 62,792   |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | TOTAL REVENUE |           |         | 18,003  |  |       |          | 46,592   |  |      |          | 37,949   |  |       |         | 15,441 |  |   |          | 34,830  |  |   |         | (1,905  | ) |   |          | 150,910   | 
|Cost of revenue                            |               |           | 20,832  |         |  |       | 47,502   |          |  |      | 29,927   |          |  |       | 7,505   |        |  |   | 16,249   |         |  |   | (1,903  | )       |   |   | 120,112  |          
|Selling, general & administrative expenses |               |           | 26,251  |         |  |       | 33,673   |          |  |      | 13,567   |          |  |       | 13,571  |        |  |   | 17,852   |         |  |   | 30,758  |         |   |   | 135,672  |          
|Depreciation and amortization              |               |           | 15,246  |         |  |       | 28,885   |          |  |      | 6,118    |          |  |       | 6,703   |        |  |   | 9,699    |         |  |   | 37,402  |         |   |   | 104,053  |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Loss from operations                       |               | $         | (44,326 | )       |  | $     | (63,468  | )        |  | $    | (11,663  | )        |  | $     | (12,338 | )      |  | $ | (8,970   | )       |  | $ | (68,162 | )       |   | $ | (208,927 | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | Total assets  |           | $       | 197,279 |  |       | $        | 410,886  |  |      | $        | 59,964   |  |       | $       | 67,926 |  |   | $        | 114,948 |  |   | $       | 594,308 |   |   | $        | 1,445,311 | 
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Capital expenditures (3)                   |               | $         | 87,592  |         |  | $     | 74,631   |          |  | $    | 12,717   |          |  | $     | 24,168  |        |  | $ | 26,872   |         |  | $ | 19,797  |         |   | $ | 245,777  |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|EBITDA                                     |               | $         | (29,080 | )       |  | $     | (34,583  | )        |  | $    | (5,545   | )        |  | $     | (5,635  | )      |  | $ | 729      |         |  | $ | (30,760 | )       |   | $ | (104,874 | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|2000                                       |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|REVENUE:                                   |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Data-internet services                     |               | $         | 475     |         |  | $     | 25,505   |          |  | $    | 8,830    |          |  | $     | 3,465   |        |  | $ | 3,093    |         |  | $ |        |         |   | $ | 41,368   |          
|Voice services                             |               |           | 43      |         |  |       | 2,456    |          |  |      | 3,611    |          |  |       |        |        |  |   | 5,465    |         |  |   | (708    | )       |   |   | 10,867   |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | TOTAL REVENUE |           |         | 518     |  |       |          | 27,961   |  |      |          | 12,441   |  |       |         | 3,465  |  |   |          | 8,558   |  |   |         | (708    | ) |   |          | 52,235    | 
|Cost of revenue                            |               |           | 2,219   |         |  |       | 37,540   |          |  |      | 9,245    |          |  |       | 1,741   |        |  |   | 4,558    |         |  |   | (1,233  | )       |   |   | 54,070   |          
|Selling, general & administrative expenses |               |           | 9,437   |         |  |       | 28,348   |          |  |      | 5,425    |          |  |       | 5,649   |        |  |   | 6,596    |         |  |   | 12,240  |         |   |   | 67,695   |          
|Depreciation and Amortization              |               |           | 713     |         |  |       | 25,713   |          |  |      | 1,738    |          |  |       | 1,446   |        |  |   | 2,137    |         |  |   | 12,048  |         |   |   | 43,795   |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Loss from operations                       |               | $         | (11,851 | )       |  | $     | (63,640  | )        |  | $    | (3,967   | )        |  | $     | (5,371  | )      |  | $ | (4,733   | )       |  | $ | (23,763 | )       |   | $ | (113,325 | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|                                           | Total assets  |           | $       | 93,568  |  |       | $        | 421,582  |  |      | $        | 44,261   |  |       | $       | 45,504 |  |   | $        | 85,846  |  |   | $       | 607,487 |   |   | $        | 1,298,248 | 
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|Capital expenditures (3)                   |               | $         | 71,591  |         |  | $     | 94,030   |          |  | $    | 6,533    |          |  | $     | 3,998   |        |  | $ | 16,795   |         |  | $ | 576     |         |   | $ | 193,523  |          
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          
|EBITDA                                     |               | $         | (11,138 | )       |  | $     | (37,927  | )        |  | $    | (2,229   | )        |  | $     | (3,925  | )      |  | $ | (2,596   | )       |  | $ | (11,715 | )       |   | $ | (69,530  | )        
|                                           |               |           |         |         |  |       |          |          |  |      |          |          |  |       |         |        |  |   |          |         |  |   |         |         |   |   |          |          

77



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



---



|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other consists primarily of corporate operations,
    intercompany eliminations and the results of operations of the
    executive management Rabbi trust. All material intercompany
    accounts and transactions have been eliminated.
|   
|(2) | EBITDA for 2002 excludes allowance for
    stockholder loan of $10.4 million included in Selling,
    general and administrative expenses.                                                                                              
|   
|(3) | Includes property and equipment acquired through
    vendor financing arrangements of approximately
    $107.9 million in 2001 and $30.8 million in 2000.                                                                               

There are no significant transfers between
geographic areas and segments. Operating loss consists of
revenue less operating expenses and does not include interest
expense, interest income and other income (expense), minority
interest and income taxes. Total assets are those assets used in
our operations in each geographic area. Corporate assets
primarily include cash and cash equivalents, property and
equipment and intangible assets.

NOTE 9  Commitments and
Contingencies

We have operating lease agreements for our
premises and equipment that expire on various dates through
2010. Amounts due under the operating agreements are subject to
increases in accordance with their terms. Rent expense for the
years ended December 31, 2002, 2001 and 2000 were $7.4
million, $8.0 million and $4.3 million, respectively.

Minimum future lease payments under
non-cancelable operating leases, including the capacity purchase
agreement, in effect at December 31, 2002 were as follows
(in thousands):

|                          |  |   |        | 
|------------------------- |  | - | ------ | 
|2003                      |  | $ | 6,139  | 
|2004                      |  |   | 4,960  | 
|2005                      |  |   | 4,407  | 
|2006                      |  |   | 3,750  | 
|2007                      |  |   | 3,750  | 
|Thereafter (through 2015) |  |   | 13,785 | 
|                          |  |   |        | 
|                          |  | $ | 36,791 | 
|                          |  |   |        | 

We have been named as a nominal defendant in an
action entitled Confin International Investments, Inc., Pltf. v.
AT&T Corp., et al, filed in the Delaware Court of Chancery
in New Castle County on October 29, 2002 in which AT&T
Corp. and each of our directors have been named as defendants.
The complaint in the action contains two counts, the first
styled as a derivative claim on our behalf alleging breach of
the duty of loyalty by AT&T Corp. and the members of our
board of our directors. The second count alleges a class action
by our shareholders (other than AT&T Corp. and our
directors) for unspecified damages purportedly caused by the
actions alleged in the first count. The complaint seeks recovery
of the plantiffs attorneys fees and costs, and
alleges plaintiff has been a shareholder of the Company for a
relevant period.

We expect that AT&T Corp. will defend this
lawsuit vigorously, and we anticipate that each of our
directors, to the extent they are not dismissed from this
action, will similarly launch a vigorous defense. While we are
unable to predict the outcome of this case, we do not believe it
will have a material impact on our financial condition, results
of operation, or cash flows.

In June 2002 an affiliate of Siemens AG initiated
a legal proceeding in New York Supreme Court against us and our
subsidiary in Argentina, concerning obligations under certain
promissory notes due in May 2002, having an original face amount
of approximately $12.0 million, which we did not pay due to
a disagreement over the governing law and the effect of changes
in laws in Argentina on the principal amount of such notes. In

78



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

November 2002 Siemens initiated a second, similar
action covering approximately $4.0 million original face
amount of notes. We received an adverse judgment in the first
proceeding in October 2002 and in the second proceeding in
January 2003. We have appealed the first action, and intend to
file an appeal in the second action if the judgment is entered.
We also have $3.7 million in additional notes to Siemens
that are due in March 2003. We are currently in discussions with
this creditor to resolve and reschedule these obligations. In
June 2002 we also received a complaint in New York Supreme Court
from IIG Capital, an investment fund that has informed us it
received an assignment of a note of $5.0 million original
face amount issued by the Company to an affiliate of Siemens,
which we also did not pay when due in May 2002 due to our view
of the applicable governing law and effects of changes in law in
Argentina. The claims at issue are similar to those raised in
the Siemens matter. We are in the process of defending this
action.

In November 2002 Banco Itaú S.A. initiated a
legal proceeding in Brazil against our subsidiary, AT&T do
Brasil, concerning a loan in the amount of approximately US
$12.0 million. Banco Itaú S.A. has attempted to
accelerate payment of all amounts outstanding under the loan of
which approximately US $2.2 million at December 31,
2002 was past due. In January 2003 AT&T do Brasil filed a
pre-executory exception in this collection action which
exception was reversed in March 2003. Also, at the request of
Banco Itaú S.A., in the same decision the court decided:
(i) to grant to Banco Itaú S.A. rights over certain
forward contracts totalling approximately $9.4 million (as
of March 14, 2003) in favor of the Company, which are
payable in April 2003; and (ii) to create a pledge on
certain bank accounts of AT&T do Brasil indicated by Banco
Itaú S.A. However, on March 24, 2003, AT&T do
Brasil obtained a suspension on the pledge order in an
interlocutory appeal.

On November 17, 2002, HSBC initiated a legal
proceeding in Brazil against AT&T do Brasil asserting a
claim for attachment of assets and rights on a $8.4 million
loan. On December 13, 2002, AT&T do Brasil filed a
Provisional Remedy to suspend the effects of a cross default and
acceleration clause contained in two loan agreements entered
into with HSBC. The injunction was granted on December 16,
2002 and the ability of HSBC to accelerate the loan agreements
was suspended. On December 27, 2002, HSBC contested the
injunction but the court confirmed its decision.

We have not paid approximately $6.6 million
under contracts with AT&T Corp., including approximately
$0.8 million under our service mark license agreements. In
addition, we have not paid a retention payment of
$0.5 million due February 28, 2003 under an employment
contract with our chief executive officer and have received
notice of such non-payment (which non-payment may be cured
within 30 days for such notice). We are in discussions with
AT&T Corp. and our chief executive officer regarding a
restructuring of our obligations under these contracts. If we
are not able to reach agreement, these contracts could be
terminated, and the counterparties could pursue remedies against
us.

Our current and future operations and investments
in certain foreign countries are generally subject to the risks
of political, economic or social instability, including the
possibility of expropriation, confiscatory taxation,
hyper-inflation or other adverse regulatory or legislative
developments, or limitations on the repatriation of investment
income, capital and other assets. We cannot predict whether any
of such factors will occur in the future or the extent to which
such factors would have a material adverse effect on our
international operations.

See Note 13 with respect to our commitments under
our Deferred Compensation Plan.

NOTE 10  New Accounting
Pronouncements

Effective January 1, 2002, we adopted SFAS
No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 stops the amortization of our goodwill, which
is allocated through our country operations, and requires an
annual, or when events or circumstances dictate a more frequent,
impairment review of our goodwill. Accordingly, as of
January 1, 2002, we no longer amortize our goodwill. We
have recorded a transitional

79



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

impairment loss of $267.8 million as of
January 1, 2002, which has been recorded as a cumulative
effect of change in accounting principle in our country
operations as follows: Argentina  $33.2 million,
Brazil  $67.4 million, Chile 
$19.3 million, Colombia  $28.4 million and
Peru  $119.5 million. Subsequent to the
implementation of this accounting principle and in connection
with the our review of our business plan, cash flow and
liquidity position, market capitalization based on the trading
price of our shares of Class A common stock as of the
valuation date and economic conditions in the countries in which
we operate, we assessed the value of our goodwill and determined
additional impairment loss in goodwill in our country operations
as follows: Brazil  $88.5 million,
Chile  $195.0 million, Colombia 
$50.0 million and Peru  $115.0 million. The
aggregate amount of impairment of $448.5 million has been
recorded as impairment loss on goodwill in the accompanying
consolidated financial statements for the year ended
December 31, 2002. The fair value of our goodwill was
determined using discounted cash flows on the current projected
operations of our country operations and market capitalization
of our business.

Since December 31, 2001, our goodwill
carrying amount has changed as a result of an impairment of
$716.3 million (including the cumulative effect of change
in accounting principle) and the change which resulted from
using a different foreign currency translation rate at
December 31, 2002 compared to December 31, 2001. If
goodwill amortization had not been recorded in 2001, our 2001
adjusted net loss and basic and diluted adjusted loss per share
would have been $266.3 million and $2.29 per share,
respectively, instead of $309.9 million and $2.66 per
share, respectively.

Our intangibles amounted to $14.4 million
and $24.1 million (net of accumulated amortization of
$20.0 million and $10.6 million) as of
December 31, 2002 and 2001, respectively. Our intangibles
do not have residual value and the weighted average amortization
period is approximately 5.6 years. The most significant
intangible asset at December 31, 2002 and 2001 relates to
the fair value of customer contracts acquired with the FirstCom
acquisition. The aggregate amortization expense related to our
intangibles for the years ended December 31, 2002, 2001,
and 2000 amounted to $10.6 million, $7.1 million and
$3.4 million, respectively. The estimated aggregate
amortization expense of intangibles for the next five years is
estimated to be as follows:

|                    |  |        |       | 
|------------------- |  | ------ | ----- | 
|                    |  | Amount
|                    |  |       
|2003                |  | $      | 5,225 | 
|2004                |  |        | 5,225 | 
|2005                |  |        | 3,492 | 
|2006                |  |        | 25    | 
|2007 and thereafter |  |        | 478   | 

Effective January 1, 2002 we also adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supercedes SFAS
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. SFAS
No. 144 applies to all long-lived assets, including
discontinued operations and consequently amends APB Opinion
No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Based on SFAS No. 121, SFAS
No. 144 develops one accounting model for long-lived assets
that are to be disposed of by sale, as well as addresses the
principal implementation issues. SFAS No. 144 requires that
long-lived assets that are to be disposed of by sale be measured
at the lower of book value or fair value less cost to sell.
Additionally, SFAS No. 144 expands the scope of
discontinued operations to include all components of an entity
with operations that (1) can be distinguished from the rest
of the entity and (2) will be eliminated from the ongoing
operations of the entity in a disposal transaction. The adoption
of SFAS No. 144 did not have any effect on our accounting
for long-lived assets on the adoption date.

80



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In April 2002, the Financial Accounting Standards
Board issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, which provides for
the rescission of several previously issued accounting
standards, new accounting guidance for the accounting of certain
lease modifications and various technical corrections that are
not substantive in nature to existing pronouncements. We will
adopt SFAS No. 145 on January 1, 2003 and expect no
material effect on our consolidated results of operation or
financial position

In June 2002, the Financial Accounting Standards
Board issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 addresses the
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
This Statement is effective for transactions initiated after
December 31, 2002 and is to be applied prospectively.

In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). This
interpretation addresses the disclosures to be made by a
guarantor in its interim and annual financial statements about
its obligations under guarantees and clarifies when a liability
for the obligation undertaken should be recognized. The initial
measurement of the liability is the fair value of the guarantee
at its inception. This interpretation does not prescribe a
specific account for the guarantors offsetting entry when
it recognizes the liability at the inception of a guarantee nor
does it specify the subsequent measurement of the guarantors
recognized liability. The initial recognition and measurement
provisions shall be applied on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirements are included in Note 3. FIN 45 is not expected to
have a material effect on the Companys consolidated
results of operation and financial position.

NOTE 11  Extraordinary
Gain (Loss) on Debt Restructuring

As part of the restructuring of our financing
with AT&T Corp., we issued to AT&T Corp. warrants to
acquire approximately 4.9 million shares of our
Class A common stock. Half of these warrants are
exercisable at a price of $8.00 per share and the other half are
exercisable at a price of $0.01 per share. The warrants have
been valued using the Black-Scholes pricing model with the
following assumptions: 6 years expected life; a volatility
factor of 132.0%; and a risk-free interest rate of 5.2%. The
warrants are exercisable immediately and the total amount of the
warrants was included as part of the determination of the loss
on debt restructuring. The debt restructuring resulted in an
extraordinary loss of $6.3 million for the year ended
December 31, 2002.

In June 2002 we signed an agreement with one of
our vendors for the restructuring of the financing provided
under certain vendor financing agreements with the vendor. Under
the restructuring agreement it was agreed to reduce the
principal outstanding from $9.5 million to $8.6 million as
well as a reduction of interest rate from LIBOR plus 7.0% to
LIBOR plus 0.0%. The restructuring also provided for quarterly
payment of interest commencing in August 2002 with a maturity of
the principal in April 2004. The debt restructuring resulted in
an extraordinary gain of $1.8 million, resulting from the
reduction of principal and accrued interest, which have been
included in the statement of operation for the year ended
December 31, 2002.

NOTE 12  Other Expense
(Income), Net

We use derivative instruments, currently forward
contracts, to reduce our exposure to fluctuations in foreign
currency exchange rates. We do not use derivatives instruments
for speculative purposes. Our most significant contracts to buy
U.S. dollars are forward contracts entered into to fix the cost
in foreign currency or in U.S. dollars of our U.S. dollars
denominated debt obligations in Brazil.

81



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002, we had foreign
currency forward contracts that hedge certain transactions with
notional amounts of $147.8 million, maturing in various
dates through November 2003. The total $20.8 million fair
value of forward currency contract assets which are included as
prepaid expenses and other current assets on our
December 31, 2002 balance sheet, represents unrealized
gains on our forward currency contracts selling or buying
foreign currencies as result of the strengthening or weakening
of the dollar compared to the currencies that we hedge. We have
certain hedge transactions in Brazil and the United States, the
counterparties of which are also creditors of ours holding
certain commercial bank loans. To the extent we do not succeed
in restructuring certain of those loans, we may not gain access
to some of the hedge settlement proceeds as they come due.
Failure to collect on hedge proceeds would materially impair our
liquidity outlook.

Derivative gains and losses included in
accumulated other comprehensive income are reclassified into
earnings at the same time the underlying hedged transaction is
recorded in earnings. At December 31, 2002, we have no
amounts recorded in other comprehensive income.

During the second quarter of 2002 we discontinued
cash flows hedge accounting for certain forward contracts and
concurrently designated the respective underlying loans as a
long-term investment. The forward contracts that were accounted
for as cash flows hedges are now being accounted for as
undesignated forward contracts and the change in the fair value
of these contracts is accounted for as other expenses in the
statement of operations. With the designation of the underlying
loans as long-term investment the amount of $12.6 million
previously deferred in other comprehensive income
(loss) was reclassified to other expense in the
accompanying statement of operations during the second quarter
of 2002.

Due to our current credit capacity and higher
margin requirements needed by our counter-party financial
institutions we were not able to continue our rollover strategy
on our existing forward contracts. As a result, we discontinued
cash flow hedge accounting for our remaining portfolio of
forward contracts that are protecting us from Brazilian Real
fluctuations against the U.S. dollar on loans held by AT&T
do Brazil resulting in a charge to other expense of
$29.3 million. The remaining components of other expense
were foreign currency transaction losses, fair value changes on
our undesignated forward contracts, and other non-operating
expenses.

NOTE 13  Deferred
Compensation Plan

In November 2000 we adopted a deferred
compensation plan for various members of management that permits
them to defer 10% to 80% of their cash compensation until the
earlier of their termination of employment or the date on which
they designated as a distribution date at the time they elected
to make a deferral. The plan authorized the Company to make
voluntary contributions to the plan on behalf of the
participants, which amounts would have been subject to vesting.
To date the Company has made no voluntary contributions.
Deferrals made under the plan have been placed in a rabbi
trust which is primarily invested in policies insuring the
life of each participant. The investment income or losses on the
investments options made by the participants are included in our
consolidated statement of operations. To date we have included
approximately $0.2 million of investment losses with
respect to participants investment elections.

The plan entitled the participants to receive
their entire vested amount in the plan upon termination of
employment together with an additional amount calculated as a
gross-up using the maximum corporate income tax rate (currently
35%). The amount of the gross up (assuming a 35% corporate tax
rate) was equal to 0.5384 multiplied by the participants
account balance upon distribution. As of December 31, 2002,
we had incurred cash expenses of approximately $0.3 million
with respect to gross-up payments paid to participants that are
no longer employed by us. As of December 31, 2002, the
amount recorded as deferred compensation in the plan was
approximately $2.8 million.

82



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During January 2003, all participants of the
deferred compensation plan waived their rights to their
additional amounts calculated as a gross-up in lieu of early
termination of the plan. The plan was terminated in the first
quarter of 2003.

NOTE 14  Quarterly
Information (Unaudited)

The following table presents unaudited quarterly
operating results for the years ended December 31, 2002 and
2001. We believe that all necessary adjustments have been
included in the amounts stated below to present fairly the
quarterly results when read in conjunction with the consolidated
financial statements and notes therefore for the period
presented.

|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |         |  
|------- | ------------------------------------------- | ------------------ | ------ | ------------------ | - | ------ | ------ | -------- | - | ------ | ------ | -------- | - | ------ | ------ | -------- | - | - | ------ | ------- | - | - | ------ | ------- | - | - | ------ | ------- | - | - | ------ | ------- | -
|        |                                             |                    |        |                   
|        |                                             | 2002 Quarter Ended |        | 2001 Quarter Ended
|        |                                             |                    |        |                   
|        |                                             | Mar 31             |        | Jun 30             |   | Sep 30 |        | Dec 31   |   | Mar 31 |        | Jun 30   |   | Sep 30 |        | Dec 31  
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |         
|Revenue |                                             | $                  | 44,161 |                    |   | $      | 41,974 |          |   | $      | 39,917 |          |   | $      | 39,541 |          |   | $ | 31,670 |         |   | $ | 33,647 |         |   | $ | 39,260 |         |   | $ | 46,333 |        
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Gross margins                               |                    | $      | 15,675             |   |        | $      | 15,501   |   |        | $      | 15,541   |   |        | $      | 15,265   |   |   | $      | 5,898   |   |   | $      | 5,277   |   |   | $      | 6,884   |   |   | $      | 12,739  |  
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Impairment loss on goodwill                 |                    | $      |                   |   |        | $      |         |   |        | $      | 413,469  |   |        | $      | 35,000   |   |   | $      |        |   |   | $      |        |   |   | $      |        |   |   | $      |        |  
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Loss from operations                        |                    | $      | (30,688            | ) |        | $      | (38,391  | ) |        | $      | (467,858 | ) |        | $      | (82,629  | ) |   | $      | (51,557 | ) |   | $      | (53,458 | ) |   | $      | (50,305 | ) |   | $      | (53,607 | )
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Net loss                                    |                    | $      | (345,321           | ) |        | $      | (103,292 | ) |        | $      | (532,332 | ) |        | $      | (121,565 | ) |   | $      | (72,968 | ) |   | $      | (73,051 | ) |   | $      | (79,700 | ) |   | $      | (84,254 | )
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Basic and diluted net loss per common share |                    | $      | (2.92              | ) |        | $      | (0.87    | ) |        | $      | (4.48    | ) |        | $      | (1.02    | ) |   | $      | (0.63   | ) |   | $      | (0.63   | ) |   | $      | (0.69   | ) |   | $      | (0.72   | )
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | Weighted average common Shares outstanding  |                    |        | 118,399            |   |        |        | 118,641  |   |        |        | 118,740  |   |        |        | 118,707  |   |   |        | 116,296 |   |   |        | 116,296 |   |   |        | 116,296 |   |   |        | 117,063 |  
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | EBITDA(a)                                   |                    | $      | (13,496            | ) |        | $      | (13,213  | ) |        | $      | (10,782  | ) |        | $      | (9,455   | ) |   | $      | (26,858 | ) |   | $      | (28,702 | ) |   | $      | (25,064 | ) |   | $      | (24,250 | )
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        
|        | CAPEX (b)                                   |                    | $      | 7,334              |   |        | $      | 12,795   |   |        | $      | 9,333    |   |        | $      | 8,923    |   |   | $      | 92,547  |   |   | $      | 55,752  |   |   | $      | 51,975  |   |   | $      | 45,503  |  
|        |                                             |                    |        |                    |   |        |        |          |   |        |        |          |   |        |        |          |   |   |        |         |   |   |        |         |   |   |        |         |   |   |        |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | EBITDA is an important measure used by our chief
    operating decision makers to measure our country operating
    results and performance. We calculate EBITDA as loss from
    operations plus depreciation and amortization expense plus
    impairment loss on goodwill plus allowance for stockholder loan.
    Management believes EBITDA is meaningful to investors because
    they provide analyses of operating results using the same
    measures used by our chief operating decision makers. In
    addition, we believe that EBITDA allow investors a means to
    evaluate the financial results of each segment in relation to
    our total operations. Our calculations of EBITDA may or may not
    be consistent with the calculation of these measures by other
    public companies. EBITDA should not be viewed by investors as an
    alternative to generally accepted accounting principles
    (GAAP) measures of income as a measure of performance or to
    cash flows from operating, investing and financing activities as
    a measure of liquidity. In addition, EBITDA does not take into
    account changes in certain assets and liabilities as well as
    interest and income taxes which can affect cash flows.
|   
|(b) | We calculate CAPEX, or capital expenditures, as
    gross property and equipment purchased, net of dispositions, but
    excluding translation adjustments resulting from our countries
    that use local currencies as functional currencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Our quarterly results of operations were affected
as follows: 1Q  2002 $6.3 million related to an
extraordinary loss on debt restructuring with our parent company
AT&T Corp. and $267.8 million related to the cumulative
effect of change in accounting principle related to
implementation of SFAS 142; 2Q  2002
$8.7 million related to incremental depreciation on certain
non-core assets and excess property and equipment not deployed
on our countries operations and $1.8 million gain related
to and extraordinary gain on debt restructuring with a equipment
supplier; 3Q  2002 $22.2 million related to
incremental depreciation on certain non-core assets and excess
property and equipment not deployed on our countries operations,
$413.5 million related to impairment loss on goodwill;
4Q  2002 $9.3 million related to incremental

83



---



##### 



AT&T LATIN AMERICA CORP.


(A majority owned subsidiary of AT&T
Corp.)


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

depreciation on certain non-core assets and
excess property and equipment not deployed on our countries
operations, $15.6 million related to deferred financing
costs no longer amortizable over the maturity of the senior
secured vendor financing due to the termination of such
financing, $2.0 million related to early termination of an
operating lease and $35.0 million related to impairment
loss on goodwill.

84



---



##### 





|         |                                                                                         
|-------- | ----------------------------------------------------------------------------------------
|ITEM  9. | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure

None.

PART III



|          |                                                           
|--------- | ----------------------------------------------------------
|ITEM  10. | Directors and Executive Officers of
    AT&T Latin America

Information regarding executive officers required
by Item 401 of Regulation S-K is furnished in a
separate disclosure in Part I of this Annual Report on
Form 10-K. The other information required by Item 10
will be included in our Proxy Statement for the 2003 Annual
Meeting of Stockholders to be filed within 120 days after
December 31, 2002, which information is incorporated in
this Annual Report on Form 10-K by reference.

ITEM 11.     Executive
Compensation

Information required by Item 11 will be
included in our Proxy Statement for the 2003 Annual Meeting of
Stockholders to be filed within 120 days after
December 31, 2002, which information is incorporated in
this Annual Report on Form 10-K by reference.



|          |                                                                                                             
|--------- | ------------------------------------------------------------------------------------------------------------
|ITEM  12. | Security Ownership of Certain Beneficial
    Owners and Management and Other Related Stockholder
    Matters

Information required by Item 12 will be
included in our Proxy Statement for the 2003 Annual Meeting of
Stockholders to be filed within 120 days after
December 31, 2002, which information is incorporated in
this Annual Report on Form 10-K by reference.

ITEM 13.     Certain
Relationships and Related Transactions

Information required by Item 13 will be
included in our Proxy Statement for the 2003 Annual Meeting of
Stockholders to be filed within 120 days after
December 31, 2002, which information is incorporated in
this Annual Report on Form 10-K by reference.

ITEM 14.     Controls
and Procedures

Based on an evaluation of our disclosure controls
and procedures conducted within 90 days of the date of
filing this report on Form 10-K, our chief executive
officer and chief financial officer have concluded that the
disclosure controls and procedures are effective.

There were no significant changes in our internal
controls or in other factors that could significantly affect
those controls subsequent to the date of this most recent
evaluation of our disclosure controls and procedures.

PART IV



|          |                                                                     
|--------- | --------------------------------------------------------------------
|ITEM  15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a) Index to Financial
Statements

Please see page 49 of this Annual Report on
Form 10-K for the index to financial statements.

(b) Reports on Form 8-K

On November 14, 2002 we filed a current
report on Form 8-K disclosing information under
Item 9, Regulation FD Disclosure.

85



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act, as amended the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Washington D.C., on March 28, 2003.



| |                         
| | ------------------------
| | AT&T Latin America Corp.



| |     |                          
| | --- | -------------------------
| | By: | /s/ PATRICIO E. NORTHLAND

| | 
| | 
| | 

| |                                       |                            
| | ------------------------------------- | ---------------------------
| | Name:  Patricio E. Northland*  Title: | Director, President and CEO

| |                              
| | -----------------------------
| | (Principal Executive Officer)



| |     |                      
| | --- | ---------------------
| | By: | /s/ LAWRENCE E. YOUNG

| |                        
| | -----------------------
| |                        
| | Name: Lawrence E. Young

| |        |                        
| | ------ | -----------------------
| | Title: | Chief Financial Officer

| |                                             
| | --------------------------------------------
| | (Principal Financial and Accounting Officer)




|  |                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------
|* | As President and CEO, as Director and as
    attorney-in-fact for Messrs. Ames, Anderson, Dwyer, Harrison,
    Kleinman, Petrillo, and Webster.

86



---



##### 



CERTIFICATION OF CHIEF EXECUTIVE
OFFICER

I, Patricio E. Northland, certify that:



| |     |                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | I have reviewed this Annual Report on
    Form 10-K for AT&T Latin America Corp.;                                                                                                                                                                                                                                                           
|
| | (2) | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | (3) | Based on my knowledge, the financial statements,
    and other financial information included in the report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                               
|
| | (4) | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |     |                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | (b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of the report
    (Evaluation Date); and                                                                                                                  
|
| | (c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |     |                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |     |                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |     |                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses

March 27, 2003

/s/ PATRICIO E. NORTHLAND




Patricio E. Northland


Chief Executive Officer and President


87



---



##### 



CERTIFICATION OF CHIEF FINANCIAL
OFFICER

I, Lawrence E. Young, certify that:



| |     |                                                                                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | I have reviewed this Annual Report on
    Form 10-K for AT&T Latin America Corp.;                                                                                                                                                                                                                                                           
|
| | (2) | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | (3) | Based on my knowledge, the financial statements,
    and other financial information included in the report, fairly
    present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                               
|
| | (4) | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |     |                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | (b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of the report
    (Evaluation Date); and                                                                                                                  
|
| | (c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |     |                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |     |                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |     |                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses

March 27, 2003

/s/ LAWRENCE E. YOUNG




Lawrence E. Young


Chief Financial Officer


88



---



##### 



POWER OF ATTORNEY

Each person whose signature appears below hereby
authorizes, constitutes and appoints Patricio E. Northland and
Lawrence Young or any of them, as such persons
attorney-in-fact, with full power of substitution and
resubstitution, to sign and file on such persons behalf
individually and in each capacity stated below AT&T Latin
Americas Annual Report on Form 10-K, any and all
amendments to this report, as fully as such person could do in
person, hereby ratifying and confirming all that such
attorney-in-fact, or his substitutes, may lawfully do or cause
to be done by virtue hereof.

Each of the undersigned has signed this power of
attorney as of this 28th day of March 2003.



| |                                             
| | --------------------------------------------
| | /s/ PATRICIO E. NORTHLAND                   
| |                                             
| | Patricio E. Northland                       
| | Chairman, President and CEO                 
| | (Principal Executive Officer)               
|
| | /s/ LAWRENCE E. YOUNG                       
| |                                             
| | Lawrence E. Young                           
| | Chief Financial Officer                     
| | (Principal Financial and Accounting Officer)
|
| | /s/ A. GARY AMES                            
| |                                             
| | A. Gary Ames                                
| | Director                                    
|
| | /s/ RICHARD K. ANDERSON                     
| |                                             
| | Richard K. Anderson                         
| | Director                                    
|
| | /s/ EDWARD A. DWYER                         
| |                                             
| | Edward A. Dwyer                             
| | Director                                    
|
| | /s/ R. REED HARRISON III                    
| |                                             
| | R. Reed Harrison                            
| | Director                                    
|
| | /s/ DAVID C. KLEINMAN                       
| |                                             
| | David C. Kleinman                           
| | Director                                    
|
| | /s/ JOHN C. PETRILLO                        
| |                                             
| | John C. Petrillo                            
| | Director                                    
|
| | /s/ GEOFFREY S. WEBSTER                     
| |                                             
| | Geoffrey S. Webster                         
| | Director                                    

89



---



##### 



EXHIBIT INDEX

|        |          |             |  |                                                                                                                                                                                                                                                                                                                                   
|------- | -------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |          |            
|Number  |          | Description
|        |          |            
|        | **3.1    |             |  | Amended and Restated Certificate of Incorporation
    of AT&T Latin America Corp.                                                                                                                                                                                                                                                 
|        | **3.2    |             |  | Amended and Restated Bylaws of AT&T Latin
    America Corp.                                                                                                                                                                                                                                                                       
|        | **4.1    |             |  | Amended and Restated Certificate of Incorporation
    of AT&T Latin America Corp. (See Exhibit 3.1)                                                                                                                                                                                                                               
|        | **4.2    |             |  | Amended and Restated By-laws of AT&T Latin
    America Corp. (See Exhibit 3.2)                                                                                                                                                                                                                                                    
|        | ***4.3   |             |  | Credit Facility Agreement, dated as of
    February 27, 2002 among Global Card Holdings Inc., AT&T
    Corp., AT&T Latin America Corp., AT&T Argentina S.A.,
    AT&T Peru S.A, AT&T do Brasil S.A., AT&T Colombia
    S.A. and AT&T Chile S.A.                                                                                   
|        | ***4.4   |             |  | Amended and Restated Certificate of designation
    of shares of 15% Series B Preferred stock of AT&T Latin
    America Corp.                                                                                                                                                                                                     
|        | ***4.5   |             |  | Warrant Agreement, dated as of March 22,
    2002, among AT&T Latin America Corp. and AT&T Corp.                                                                                                                                                                                                                                  
|        | ***4.6   |             |  | Common Agreement dated as of December 21,
    2001, as amended and restated as of March 25, 2002, among
    AT&T Latin America Corp., Latin American Equipment Finance
    B.V., the administrative agents party thereto and ABN AMRO
    Trustees Limited, as collateral agent.                                                  
|        | ***4.7   |             |  | Credit Agreement dated as of December 21,
    2001, as amended and restated as of March 25, 2002, among
    AT&T Latin America Corp., Latin American Equipment Finance
    B.V., Cisco Systems Capital Corporation, the other lenders from
    time to time party thereto, and Bankers Trust Company, as
    administrative agent.
|        | ***4.8   |             |  | Credit Agreement dated as of December 21,
    2001, as amended and restated as of March 25, 2002, among
    AT&T Latin America Corp., Latin American Equipment Finance
    B.V., Lucent Technologies Inc., the other lenders from time to
    time party thereto, and Bankers Trust Company, as administrative
    agent.         
|        | ***4.9   |             |  | Credit Agreement dated as of December 21,
    2001, as amended and restated as of March 25, 2002, among
    AT&T Latin America Corp., Latin American Equipment Finance
    B.V., Nortel Networks Limited, the other lenders from time to
    time party thereto, and Bankers Trust Company, as administrative
    agent.          
|        | ***4.10  |             |  | Subordination Agreement dated as of
    March 25, 2002, among AT&T Latin America Corp., Latin
    American Equipment Finance B.V., certain subsidiaries of
    AT&T Latin America Corp., Global Card Holdings Inc.,
    AT&T Corp. and ABN AMRO Trustees Limited, as collateral
    agent.                                        
|        | **10.1   |             |  | Regional Vehicle Agreement, dated August 28,
    2000, between AT&T Latin America Corp. and AT&T Corp.                                                                                                                                                                                                                            
|        | *10.2    |             |  | Service Mark License Agreement, dated
    November 18, 1999, between AT&T Latin America Corp. and
    AT&T Corp.                                                                                                                                                                                                                  
|        | *10.3    |             |  | Employment Agreement, dated as of
    November 1, 1999, between AT&T Latin America Corp.
    (formerly Kiri Inc.), FirstCom Corporation and Patricio E.
    Northland.                                                                                                                                                            
|        | ****10.4 |             |  | Employment Agreement dated as of June 2002
    between AT&T Peru S.A. and Jose Gandullia.                                                                                                                                                                                                                                         
|        | *10.5    |             |  | Employment Agreement, dated as of May 15,
    2000, between AT&T Latin America Corp. (as successor to
    FirstCom Corporation) and Thomas C. Canfield.                                                                                                                                                                           
|        | *10.6    |             |  | Employment Agreement, dated as of June 26,
    2000, between AT&T Latin America Corp. and Marco Northland.                                                                                                                                                                                                                        

90



---



##### 



|        |            |             |  |                                                                                                                                                                                              
|------- | ---------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |            |            
|Number  |            | Description
|        |            |            
|        | 10.7       |             |  | Employment Agreement, dated as of August 28,
    2000, between AT&T Chile Long Distance S.A. and Carlos
    Fernandez.                                                                       
|        | **10.8     |             |  | AT&T Latin America 2000 Long Term Incentive
    Program.                                                                                                                                     
|        | ***10.9    |             |  | Executive Retention Plan, dated as of
    November 1, 2000.                                                                                                                                  
|        | *****10.10 |             |  | Amended and Restated Promissory Note, dated as of
    November 27, 2001, superceding Promissory Note dated as of
    January 26, 2001, in each case by Patricio E. Northland as
    borrower.
|        | *****10.11 |             |  | Amended and Restated Security Agreement, dated as
    of November 27, 2001, between Patricio E. Northland and
    AT&T Latin America Corp.                                                   
|        | *****10.12 |             |  | Letter relating to retention bonus, dated as of
    November 27, 2001, between AT&T Latin America Corp. and
    Patricio E. Northland.                                                       
|        | *****10.13 |             |  | Restricted Stock Agreement, dated as of
    November 27, 2001, between AT&T Latin America Corp. and
    Patricio E. Northland.                                                               
|        | *****10.14 |             |  | Sample Stock Option Agreement under the AT&T
    Latin America Corp. 2000 Long-Term Incentive Plan.                                                                                          
|        | **21.1     |             |  | Subsidiaries of AT&T Latin America Corp.                                                                                                                                                     
|        | 23.1       |             |  | Consent of PricewaterhouseCoopers LLP,
    independent accountants.                                                                                                                          
|        | 24.1       |             |  | Powers of Attorney (included with signature page).                                                                                                                                           



---



|      |                                                                                                                                                                
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|*     | Incorporated by reference to AT&T Latin
    Americas Registration Statement on Form S-4, dated
    July 27, 2000 (Registration #333-42176).                   
|     
|**    | Incorporated by reference to AT&T Latin
    Americas Annual Report on Form 10-K, for the year
    ended December 31, 2000, dated April 2, 2001.               
|     
|***   | Incorporated by reference to AT&T Latin
    Americas Annual Report on Form 10-K, for the year
    ended December 31, 2001, dated April 1, 2002.               
|     
|****  | Incorporated by reference to AT&T Latin
    Americas Quarterly Report on Form 10-Q, for the
    quarter ended September 30, 2002, dated November 14,
    2002.
|     
|***** | Incorporated by reference to AT&T Latin
    Americas Quarterly Report on Form 10-Q, for the
    quarter ended June 30, 2002, dated August 14, 2002.           

91